…say financial institutions no longer lending
Despite the Federal Government’s efforts to diversify the Nigerian economy, stakeholders in the real sector have alleged that the activities of the commercial banks, especially in credit disbursement, would be a clog in the wheel of the policy.
A cross-section of manufacturers and stakeholders in the real sector, who spoke with The Point, lamented over what they described as tough and unrealistic conditions being introduced by commercial and micro-finance banks as prerequisites for accessing loans, which they said was designed to frustrate them out of business.
The Point found that despite the fact that Nigeria boasts of 22 commercial banks, over 900 microfinance banks and 100 primary mortgage banks, operators in the sector only managed to disburse only 10 per cent of the available loans in their coffers to industrialists, which is far less than what is obtainable in other developing economies.
For instance, their counterparts in South Africa and Brazil meet the much required volume of consumer credit expected as they offer 40 per cent and 30 per cent of the loans in their coffers to industrialists and other applicants.
Specifically, stakeholders in the organised private sector have carpeted the Central Bank of Nigeria over “its failure to that ensure banks give adequate financial supports to manufacturers.” They agreed that though the country has experienced growth in the value of total loans over time, but insisted that the substantial value of loans still go to large corporates and high net-worth individuals.
The Point’s findings also revealed that the total value of loans to consumers by commercial banks is just about 10 per cent of their total loan output.
Also, about 30 per cent of total loans from Nigerian banks still goes to the oil and gas sector and less than three million out of about 40 million bank customers enjoy credit facilities from the commercial banks.
President, Manufacturers Association of Nigeria, Mr. Frank Jacob, explained that industrial capacity utilisation hovered around 20 per cent in 2016. “More than half of the surviving firms are classified as ‘ailing’, which posed serious threat to the survival of the manufacturing sector.
He said, “The business environment was plagued by epileptic power supply, bad roads, high interest rate and high cost of energy, which contributed to high cost of production and impediment to competitiveness of the sector. A major challenge was the acute scarcity of fund and foreign exchange, which restricted the ability of manufacturers to import raw materials for production.”
To further address the foreign exchange crisis, the CBN, on August 22, directed banks to allocate 60 per cent of their foreign exchange sales to manufacturers, for procurement of raw materials, plants and machineries.
In spite of this directive, the problem of foreign exchange scarcity persisted.
Director-General, Lagos Chamber of Commerce and Industry, Mr. Muda Yusuf, said the inability of manufacturers to access fund had impeded growth in the real sector.
He urged the Federal Government to ensure availability of more liquidity in the market, to restore investors’ confidence in the economy. Industry experts also urged the CBN to review its policy on the 41 items restricted from the official foreign exchange market, as it had stifled production and forced many firms out of business.
They, as a result, advised the apex bank to redirect its policies towards stimulating the economy, rather than tightening money supply. They said that monetary and fiscal policies should be coordinated for economic revival and growth. The experts also called for review of some monetary and fiscal policies that have hindered the growth of the manufacturing sector.
Deputy Managing Director, Fusedam Limited, Mr. Taiwo Odubajo, narrated the company’s ordeal to our correspondent while his company wanted to access loans worth N20 million from three of the top banks in the country.
According to the DMD of the distilleries firm, he was asked to boost his savings in the banks to the tune of N10 million and get a collateral worth another N15 million.
“To me, such conditions are ridiculous and if I have such luxury, I would not approach the banks for loan. I understand that most people don’t and will not willingly honour their obligations, unless there are compelling reasons, circumstances and processes; but I believe companies with assets like us should not be treated like others. Our assets should be enough as collateral for the loan requested for,” he told The Point.
Contrary to the allegations of wilful default on the part of most manufacturers or loan seekers, Chief Executive Officer, Big Cartons, Mr. Chikodi Okafor, explained that most loan seekers do not willingly default.
According to him, the government needs to do more to empower Nigerians because the poor state of the economy is enough for people to turn loan defaulters, as the environment remains harsh for business.
He said, “Where workers are owed salaries for months, there is no way such workers would not default in their repayment obligations. Where the macroeconomic environment is harsh and industries are closing down, and workers are losing their jobs, such phenomenon will increase default in loan obligations. And an economic environment where interest rates are growing and the foreign exchange rates keep on changing, would always lead to poor repayment of loans, no matter the good intentions of borrowers.”
LENDING MODELS ARE WRONG- EXPERTS
A cross-section of economic analysts, who spoke with The Point, advised the banks to change their lending models, as they urge Nigerians to be more responsible in their credit history.
Managing Director, ADX Credit Bureau, a Central Bank of Nigeria-licensed credit score reporting company, Mr. Biyi Ayoola, explained that most of the issues that pose to be hindrances to consumer lending in Nigeria are historical, attitudinal and also, “refusal to embrace new lending business models by our banks.”
He observed that there has always been the challenge of information asymmetry, leading to inability to have proper knowledge of the consumer borrowers. To him, this leads to difficulty in tracing and tracking customers by identity and by location.
Also, he said consumer loan transactions are too small and regarded as expensive by the banks because of what is involved in underwriting, managing, tracking and collecting small loans.
“Very closely associated with this is the adoption of wrong lending models. You cannot use corporate lending model and mindset to go into consumer lending. Consumer lending requires special lending skills, technology and mindset. A major model of bank lending in Nigeria is personal banking and relationship management. This adopts a system of processing individual customer application and applying personal judgment based on personal knowledge of the customer. There is no bank that can grant loans to millions of customers with this model and mindset,” he said.
Though, another credit expert, Dr. Charles Owoeye, agreed that Nigerian banks have made attempts to grow their consumer loan portfolios (as they introduced products like credit card, auto or vehicle loans, and some have also established dedicated desks to serve the Small and Medium Enterprises) formal lending to consumers is still relatively very low in Nigeria.
He blamed the financial institutions for concentrating on oil and gas sector alone, paying less attention to the SMEs, which are the engine rooms of any economy.
Owoeye said, “About 30 per cent of bank loans in Nigeria is made to the oil and gas sector. We all are witnesses to what is going on in the oil and gas industry. The price of crude oil in the international market has declined, and for some time, the crisis in the Niger Delta region prevented uninterrupted operations.
“Coupled with the devaluation or depreciation in the value of naira, the exposures by most oil-related companies became humongous. They were unable to service their loans. The total non-performing loans ratio in Nigerian banks have moved to double digit, far away from the CBN’s guided rate of five per cent.”
However, other analysts blamed the poor credit disbursement in the sector on the economic recession that has eaten deep into the fabrics of many Nigerians, which prevented them from repayment.
“Recession has adversely affected the repayment ability and capacity of borrowers, both corporate and consumer borrowers. During a recession, people lose jobs, disposable income is compromised because of inflation, interest and foreign exchange rates rise, making it difficult to service on-going obligations, thereby precipitating default.
“A number of white-collar employees have lost their jobs and most of them, whom the banks had granted loans on the strength of their employment, are now unable to service and repay those loans. Quite a lot of other businesses have also closed shop and their employees are in the labour market,” an economist, Ms. Ayo Adeniji, said.
