Banks Urged to Enhance Private Sector Credit

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By Obinna Chima 

The President of the Chartered Institute of Bankers of Nigeria (CIBN), Prof. Segun Ajibola has advised commercial banks in the country to increase credit to the private sector to grow the economy.

Ajibola said this at an inaugural lecture he delivered at Caleb University, Imota, Lagos, a copy of which was made available to THISDAY.

The paper was titled: ‘Rhythms and Riddles of Bank Credit: Synergies and Dislocations in Nigeria’s Economic Growth.’

According to Ajibola, so many needs compete for funds in the hands of banks. In constructing their portfolios, therefore, banks struggle to strike a trade-off between the conflicting objectives of liquidity and profitability.

“Bank credits engender illiquidity but remain the most profitable assets of a bank. Indeed, the two pillars of financial intermediation are deposit mobilised from the surplus funds unit and loans and advances to the deficit funds unit in the economy,” he said.

The don, in his paper, did not shy away from some of the criticisms and concerns often thrown at present-day banking and finance practitioners. These include competition among banks in a bid to declare humungous profits, often at the expense of the health of their customers and service offering; fraud and other malpractices such as insider abuse, staff connivance etc; high interest in quick wins with little concern for the growth of the real sectors of the economy and high interest rates amongst others.

While the CIBN head did not attempt to defend the banks against these allegations nor did he rationalise the criticisms, his submission however focused squarely on demonstrating the impact of bank credit on Nigeria’s economic growth over the years, using the findings from a series of works carried out by the don either individually or in conjunction with other academics.

He also noted that banks as financial intermediaries channel depositors’ funds to the deficit units to finance economic activities in the various sectors of the economy. When discharging this function through credit allocation, banks’ decisions are often determined by the quality of collateral, political pressures, personality, loan size and covert benefits to loan officers influence, he said.

Ajibola urged banks to remain ethical and professional in conducting lending business as well as to continue to engage staff of right skills and competencies in lending while devoting more attention to capacity building in the relevant areas.

He also recommended that specialised financial institutions such as the Bank of Agriculture, Bank of Industry, Nigeria Export-Import Bank and the new National Development Bank should stick faithfully to their mandates of lending to specific segments of the economy.