New Telegraph

CBN’s Rate Hike Will Lead to Loan Defaults, Financial Exclusion –Asimiyu, Agbo, Others

With 750 basis points hike in the anchor policy rate by the Central Bank of Nigeria (CBN), from below 20 per- cent to 26.25 percent with- in four months of this year, loan defaults may soar as customers may find it dif- ficult to pay the new rates, some analysts say. Besides, the economy might witness stunted growth as the banking industry which is said to be responsible for about 70 percent of the nation’s growth may not perform the real intermediation role effectively on account of the financial exclusion. According to John Agbo, chartered stockbro- ker, “the hike, which I feel is no longer effective this time around will slow eco- nomic growth and reduce consumer spending. It is on records that the bank- ing industry is the engine room of most economies and for that industry to experience lull on account of unpopular policies may not augur well for a strug- gling economy like Nigeria’s..

“Also the much cherished banking inclusion that CBN has spent much may become ineffective and the funds would go down the drain.” Speaking further Agbo said if care is not take and CBN is to embark on close monitoring , we might witness the rise of bad loans, beyond the 5 percent threshold . “CBN has done very well in curtailing the rise of bad loans for quite some- time now and I hope this will not have any adverse effect on it. CBN governor had consistently said the banking industry is safe, sound and secure, and I hope nothing will happen otherwise the account of these policy measures,” he said .

In his mailed response to Saturday Telegraph in- quiry, Damilare Asimiyu Macroeconomic Strategist, Afrinvest Consulting Limited said,” Manufacturers are looking at the “fruit of the economy’s dysfunc- tion”, while the CBN is looking at “one of the ma- jor root causes”. The sustained increase in the anchor rate is CBN’s strategy to tame inflation which is very high (at 33.7%) from a demand-side perspective (Nigeria’s productivity is below the equilibrium level, so demand is higher than supply). Unfortu- nately, the CBN has limit- ed tools at its disposal to fight structural-induced inflation .”

According to some other analysts and manufacturers, the hike, will, besides reducing con- sumer spending, will also decrease business invest- ments,, with the ultimate reduction in economic activities. They also see it as indicating lack of direction by the economic Managers Dr. Mohammed Hus- sain, CEO of Muregii Associates, Abuja said, ‘you can see how we are going raising all economic percentage factors higher and higher and you expect the economy to grow? The failure here which has been said so often all over the matured global financial services industry or institutions which the managers of our present monetary authorities are adamant to is, raising interest rates alone cannot cure Inflation.

Honestly I’m saddened for our current predica- ment.” According to Biodun Adedipe an economist who also featured on Channels Television, Busi- ness Incorporated pro- gramme and monitored by Saturday Telegraph “For banks, the more expensive loans are, the more troubled loans you create. Banks will not be creating the volume of loans that can drive output, and people who are already stuck with the banks will see a significant increase in their cost of doing business and selling prices,.” Similarly, Joseph Nnanna, Chief Economist, Development Bank of Nigeria, who says the de- velopment may not bring the immediate relief to the banking industry also added that CBN would not achieve inflation target of 21 percent, and continued interest rate hikes would impede GDP growth for 2024. According to the economist, who also appeared on Channels Television,“Though the hike might encourage some foreign investors to come in, CBN might not achieve its inflation target of 21 percent this year.”

Mukhtar Mukhtar , chairman of Trusted Shareholders Association of Nigeria sees some of the monetary policy measures as punitive on banks and who are venting the anger on the customers. According to Mukhtar, the banking industry is over regulated , alleging that some politicians may be using the apex bank to settle some scores that may have happened during electioneering campaigns. “If not how do you ex- plain raising interest rate to this level with CRR at 45 percent. Where is mon- ey to loan out to engender development? I think, may be some banks may have stepped on some toes during elections that the payback time may have come for some of our leaders,” he said.

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