Big-ticket borrowers of over N1bn choke out SMEs, account for 81% of Nigerian banks’ loan portfolio

The Nigerian money market remains characterized by excessive concentration of credit per obligors and per sectors, as big ticket borrowers –those who borrow above N1 billion – account for about 81 percent of the loan portfolio, just as those borrowing less than or equal to N1 million account for just about 1.3 percent.

Professor Abdul-Ganiyu Garba of the Department of Economics, Ahmadu Bello University (ABU), Zaria and Central Bank of Nigeria (CBN) Monetary Policy Committee (MPC) member, said this in his contribution to the debate at the MPC meeting of July 24/25 2017 released by the CBN Tuesday.

In voting for rate cut, he noted that small and medium scale enterprises, which have highest employment and output elasticities, typically borrow under N1 million and by such credit concentration, they would be denied credit.

“Not only do agriculture and small and medium scale players attract low allocations of credit, they do so at high costs. The maximum lending rate was 30.75% while the prime lending rate and deposit rates were 17.59% and 8.9% implying spreads of between 13.16% and 21.85%,” he noted.

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According to him, agriculture attracted just 3.2 percent (mostly guaranteed by the Central Bank). In contrast oil and gas continues to attract almost a quarter of new credits allocated in June 2017 despite relatively high ratios of non-performing loans.

“It is hard to see how such high spreads and high lending rates will stimulate growth in investment, employment, productivity and output or conduce a path towards financial system stability,” he said.

“I vote to reduce the MPR by 200 basis points (2%). This implies (i) a reduction in the MPR from 14% to 12% and (ii) a reduction in Standing Lending Facility (SLF) from 16% to 14% and the Standing Deposit Facility
(SDF) from 9% to 7%.

“My vote is a vote for (i) consistency and effectiveness of monetary policy and (ii) growth in private investment, the creation of new jobs, output growth, financial system stability and medium term macroeconomic stability,” he averred.

Garba noted that the coexistence of high interest rate and growth in money supply are unnatural, saying that it generates a contradiction or inconsistency problem.

“Strong growth in money supply in all countries that adopted quantitative easing pushed down interest rates almost to zero. And it was such almost zero interest rates that partly helped economic recovery and excessive growth in asset prices,” he stressed.