Senate accuses CBN, commercial banks of killing SMEs
The Senate on Tuesday said that policies of the Central Bank of Nigeria (CBN) and activities of commercial banks are strangulating Small and Medium Enterprises (SMEs) in the country.
The upper chamber also claimed that a cartel has effectively taken over the control of commercial banks in the country to the disadvantage of the growth of the economy and small businesses operating in Nigeria.
Deputy Senate Leader, Senator Bala Ibn Na’Allah, made the claims while contributing to a motion on “the dire need for a stakeholders round table to address increasing interest rates in Nigeria” sponsored by Senator Rafiu Adebayo Ibrahim (Kwara south).
Na’ Allah asked why interest rates in Nigeria remained high despite the fact that the country is yet to get out of its economic recession.
The Kebbi South lawmaker noted that the cartel allegedly running the commercial banks in connivance with the CBN, refused to review the interest rates downwards to reflect the economic situation of the country.
He said, “The banks are run by a powerful cartel. They do what they like and jerk up interest rates. Over the years, we have seen the exchange rates go up, but it is not the same in other economies of the world. Nigeria has the most unpredictable economy in the world and we have to be worried about this.”
Senate President, Abubakar Bukola Saraki, who also agrees with the claims, expressed worry about what he called the twin evil of interest and exchange rates, stressing that it is unreasonable for companies to continue to lay off staff while declaring huge profits annually.
He insisted that the Senate will step into the development to ensure that the right thing was done. “There has always been the twin evil of exchange rate and interest rates. We cannot live in a country where companies are folding up, yet organizations are declaring mega profits. The committee should swing into action. Whatever comes out of the committee’s work, we must see to it that it is implemented to the fullest.” Saraki said.
Senator Ibrahim in his lead debate noted that the current Monetary Policy Rates (MPR) of 14 per cent has remained high compared to other developing nations such as Brazil which has 10.25 per cent Kenya 10 per cent, South Africa 7 per cent, Rwanda 6.25 per cent, Bangladesh 6.75 percent, Botwana 5.50 per cent and many West Africa countries with single digit rates.
He said that despite all the negative indices, banks continued to declare huge earnings and profitability which as at 31st March 2017 increased significantly by 151.02 per cent while profit before tax (PBT) stood at N186.155 trillion as against N74.160 trillion in December 2016.
He said further: “Most of this profitability are derived from investment in risk free Government securities such as Treasury Bills and Bonds. The CBN is now faced with difficulties in decision- making on some of its core mandates of controlling the inflation rate, exchange rate and interest rate.
“Available and reliable records indicate that between January to December, 2016, the CBN as regulator of the banking industry had mopped up about N5.784 trillion in interest expenses for liquidity Management thereby targeting inflation at the expense of economic growth, development and employment.
“The current regime of high interest rate continues to place a major burden on business investments and household consumption spending in Nigeria, thereby negatively impacting on the survival of Nigerian businesses.
“This is perpetuating the indicator which shows that only about 3% of SMEs starting up in the country having access to credits from banks which ironically employ about 88% of our work force and therefore the backbone of the economy.”
He further expressed worry that the reported explosive increase in net credit to the government in April, 2017 annualized to 72% compared to a programmed rate of 33.12% for the year and significant decline in credit to the private sector below 14.88% target for 2017 portend grave challenge for future macroeconomic stability if allowed to entrench, crowding out private sector borrowing from the economy.
The Senate mandated its committee on Banking, Insurance and other Financial Institutions to organise a round-table session with the CBN, commercial banks, Nigerian Deposit Insurance Corporation (NDIC), other relevant stakeholders and industry experts with a view to finding immediate, sustainable and lasting solutions that would help usher in a new interest rate regime that supports enterprise development in Nigeria.