Following the inability of some businesses to access long term loans from Nigerian banks, the Managing Director of Fidelity Bank Plc Nnamdi Okonkwo said bank deposits are mainly short term in nature and lending such funds to customers for long term businesses can lead to asset mismatch.
The bank chief who spoke at the 2016 Annual Conference organized by Finance Correspondents Association of Nigeria (FICAN) in Lekki, Lagos, at the weekend, said although the lenders would want the economy to grow by lending to farmers and other productive sectors of the economy, they also have to keep an eye on the stability of their institutions.
Speaking on the theme: Nigeria Beyond Oil: Financing Options for Non-Oil Exports, he said: A whole lot of people do not realize that banksâ€™ business is to buy and sell money. So, I come to the market to purchase my raw material is cash and my finished goods are also cash. Every other thing banks do are added services. Banks get a lot of bashing for not lending long-term. Then I ask you, if as a banker, I know that secret place, where I can find long-term funds, we will be the number one bank in Nigeria today, because I can lend long-term.
Okonkwo reiterated that most depositors, who have huge amounts to save, invest in short term basis and collect huge interest on such deposits. “I want borrow N100 million, then bring me one depositor who will place N100 million with me at 10 per cent and I will lend at 15 per cent. Remember that in calculating those 10 per cent of N100 million, what you have actually given me is N75 million because N25 million will be placed with the CBN as Cash Reserve Ratio (CRR). And for me to access N5 million out of the N25 million CRR cash, I have to lend the money for use in industrial production. Then what are your risk assessments criteria if the industrial sector you want to lend to is fighting for breath, he asked”.
Besides, the CRR, he said such lender has to pay five per cent of the N100 million initial deposits to Nigeria Deposit Insurance Corporation (NDIC) premium. People actually believe that banks are not lending long-term because they do not want to. We do profitable business, he said. He explained that pension funds, equity and insurance funds where long-term funds should come from are not forth coming with such cash.
The Fidelity Bank boss also listed lack of right framework as being responsible for local banks not lending long term to Small and Medium Scale Enterprises (SMEs). He lamented the problem of lack of infrastructure, such as lack of power, adding that his bank with about 248 branches generate private electricity to power its operations, the level of power that can serve Lagos state as a whole.
He regretted that a lot of banks collapsed in the past because of assets mismatch. “When there is a run in the system, the owners of the short term funds will come for their money and you have to pay them. And if you pay them, the people you gave long-term loans cannot pay up. Then you begin to have distress in the system” Okonkwo stated.