Why banks can’t lend enough, by FCMB boss

The Group Managing Director/Chief Executive Officer of First City Monument Bank (FCMB), Ladi Balogun, has attributed Nigerian banks’ inability to continue to significantly lend to businesses to weak capital and high cash reserve ratio at 22.5 per cent set by the Monetary Policy Committee.

The Cash Reserve Ratio (CRR) is a specified percentage of the total deposits of customers, which commercial banks have to hold as reserves either in cash or as deposits with the Central Bank. At some point, it was as low as eight per cent.

The raising of the CRR, he said, has no doubt limited the funds at the disposal of the banks to lend either to the government or the real sector of the economy as confirmed by the second quarter Economic Report of the CBN.

According to the report, “banking system’s credit (net) to the Federal Government fell by 23.5 per cent to N2.9 trillion, in contrast to the growth of 30.7 and 26.5 per cent at the end of the preceding quarter and the corresponding quarter of 2015, respectively.

“The development was due to the fall in banks’ holding of government securities. Relative to the level at end-December 2015, net claims on Federal Government rose marginally by N0.96 million (0.00003 per cent) at the end of the review period, compared with the growth of 30.7 per cent and 118.5 per cent at the end of the preceding quarter and the corresponding period of 2015, respectively.”

“At N21,424.95 billion, banking system’s credit to the private sector, quarter-on-quarter, grew by 13.5 per cent, compared with the growth of 0.9 per cent and 1.3 per cent at end-June 2016 and the end of the corresponding period of 2015, respectively.

“The development was due to the growth in claims on the core private sector. Over the level at end- December 2015, banking system’s credit to the private sector grew by 14.5 per cent, compared with the growth of 0.9 per cent and 4.3 per cent recorded at the end of the preceding quarter and the corresponding period of 2015, respectively. “

But Balogun said the banks need additional capital to lend and support the economic diversification programme of the Buhari government.

“The banking sector is definitely facing challenges around capital. We need to address that. The capital market is depressed thus it’s difficult to raise capital in the market.