The World Bank has commended the on-going banking reforms by the Central Bank of Nigeria (CBN) and also stated that contrary to perception in certain quarters, there is no evidence of credit crunch in the Nigerian economy.
The commendation was made by Ismail Rodwan, a representative of the World at a dialogue of the financial sector with President Goodluck Jonathan at the State House, Lagos.
Rodwan who made a presentation on behalf of the World Bank Nigeria Country Mission, said the banking reforms were necessary and timely. He identified the growing fiscal deficit as the major risk facing the Nigerian economy at this time. This he attributed to increasing government expenditure, while oil income inflows have been decreasing and increasing level of borrowing by the Federal Government both internally and externally, which according to him, have the potentials to crowd out the private sector from obtaining credit from banks.
The World Bank said its research has shown that Nigerian banks before the intervention of the Central Bank of Nigeria (CBN) were not lending significantly to the economy, but instead lending was concentrated on margin loans to the capital market and oil & gas. According to the World Bank, there is gradual credit growth in the economy but for understandable reasons, margin lending has declined after the crisis in the banking sector which led to the intervention of the CBN.
In his comments, President Goodluck Jonathan said, even though some of the outcomes of the reforms are painful, “we have a better opportunity to put the economy, real sector, financial and capital markets on a structurally sounder footing through a well-coordinated” reforms and commended the actions of the CBN as timely. The president said the Board of AMCON will be constituted soon and explained that while the Ministry of Finance and the CBN have performed their role in the process of constituting the Board of AMCON, the initial delay was caused by the need to conduct due diligence on some of the nominees in view of the importance of AMCON in the resolution of the challenges facing the financial sector.
Other participants at the dialogue include the Ministers of Finance, National Planning and Petroleum Resources, Governor of the CBN, Mallam Sanusi Lamido Sanusi represented by Dr. Kingsley Moghalu Deputy Governor, Financial System Stability, DG Securities and Exchange Commission and representatives of other players in the financial sector, organized private sector and industries.
Contributing at the dialogue, the Managing Director of First Bank of Nigeria, Mr. Bisi Onasanya commended the CBN reforms and confirmed that the reforms were necessary and have the effect of repositioning the banking system to serve as an effective intermediary to the real sector, adding that the banks had learnt their lessons. He added that “agric business must be made profitable in order for banks to lend to them and that the businesses need to be de-risked”.
The CBN intervention funds i.e. Small and Medium Enterprises (SMEs), Power/Aviation; Agric etc were commended by the World Bank and other participants at the dialogue. However, the World Bank believes that the 80% risk guarantee given by the CBN for the funding of SMEs was “too generous” and recommended a 50-50 split of risk sharing between the CBN and commercial banks.
The President of the National Association of Small and Medium Scale Enterprises Dr. Godwin Abugu in his presentation to President Goodluck Jonathan commended the CBN credit guarantee scheme to the SMEs and endorsed the 80% risk sharing taken by the CBN, noting that 95% of members of the Association have no access to credit from banks.