Halkalı Halı Yıkama Beylikdüzü Halı Yıkama Bahçeşehir Halı Yıkama seocu
Economy

Kenya example exposes weakness in Nigeria’s move to force bank lending – S&P

Forcing banks to lend backfired in Kenya and may be an indication that Nigeria’s latest lending directives to local banks may flounder, according to international ratings agency, S & P Global.

In August 2016, the Kenyan government imposed a contentious banking law that capped what lenders can charge consumers for loans at 4 percentage points above the central bank rate.

The policy was to fulfill an election-campaign pledge by President Uhuru Kenyatta to improve lending terms for consumers, against the advice of the central bank and the National Treasury.

The policy cut into lenders’ profit margins, forcing them to be more selective in who they provide money to. That caused credit growth to shrink as Kenyan banks grew risk averse.

Growth in credit to the private-sector averaged 2.4 percent in 2017 and 2018, compared with average annual expansion of 20 percent in the decade before the law came into effect, according to the Kenyan central bank data.

As the negative impact of the lending cap worsened, a Kenyan court suspended its implementation in March 2019, calling the legislation “vague, imprecise, ambiguous and indefinite.”

It is based on the impact of trying to force banks to boost lending to specific sectors in Kenya that analysts are skeptical about Nigeria’s latest approach to force banks to lend to small businesses in specific sectors.

“In our view, the CBN’s lending measures will not work and what the Kenyan government tried to do in 2016 could be seen as proof,” said Samira Mensah, director financial services ratings, S&P Global ratings.

READ MORE:  Foreign investment into Nigeria drops by 43% – UN report

“Forceful lending didn’t work in Kenya because the banks were not able to price risk and the same scenario could play out in Nigeria,” Mensah, who was speaking at the S & P Global’s annual Nigeria conference, said.

The Central Bank of Nigeria (CBN) this month introduced new lending measures to stimulate credit growth in an economy still reeling from a contraction in 2016.

The CBN ordered the deposit money banks to lend at least 60 percent of their deposits to small businesses.

They have till September 30 to implement the measure and failure to do so comes with a penalty of forfeiting more cash to zero-interest regulatory reserves.

The current average of banks’ loan to deposit ratio is 54 percent.

The CBN followed the loan to deposit directive by introducing a measure that cut how much money lenders can keep in interest-bearing accounts with the apex bank by 73 percent.

There has been major sell-offs on some of the country’s biggest banks since the announcement of the new measures. Stocks of Guaranty Trust bank, the largest bank by market value and Zenith Bank, the second largest bank by assets, both fell to a 52-week low.

International ratings agency, Moody’s, also thinks the CBN’s directive regarding interest payment on bank deposits is unlikely to force banks to grow their lending “aggressively.”

“Already, banks were only remunerated up-to NGN7.5 billion, and any amount above N7.5 billion was not remunerated,” Peter Mushangwe, a banking analyst at Moody’s said in an exclusive comment to Business Day.

The CBN is also said to be exploring mechanisms that would limit how much the banks can invest in government securities, which has been the biggest distraction for lenders who have been willing to lend to government for double digit return since 2016, rather than gamble on private lending in a risk-laden economy.

READ MORE:  FG Must Address ‘Pressure Points’ in Economy, FSDH Says

Yields on government securities have averaged 15 percent since 2016, allowing banks make some profit even though their loan books shrank.

Treasury bill yields have since cooled to around 12 percent after the government cut back on domestic borrowing in favour of foreign debt to manage its interest payment costs.

However, at 12 percent, banks are still piling cash into one of the highest returning government securities in emerging markets.

The impact of Nigerian banks’ risk averseness has been telling on the economy which has not grown fast enough to create new jobs for burgeoning population.

The economy grew 2 percent in the first quarter of 2019, and has moved below population growth since 2016, causing GDP per capita to shrink for three years straight.

Mensah believes weak bank lending is reflective of slow economic growth.

Source: businessday

Previous ArticleNext Article

Leave a Reply

Your email address will not be published. Required fields are marked *

mersin escort bayan mersin escort bayan mersin escort bayan mersin escort bayan erotik film izle erotik film malatya escort bayan malatya escort bayan malatya escort bayan malatya escort bayan
Translate »
escort sakarya escort edirne escort kayseri escort konya escort ısparta escort bornova
Share via
%d bloggers like this:
Kıbrıs gece kulüpleri