Corruption responsible for high lending rate — Sanusi

The Governor, Central Bank of Nigeria, Mr. Lamido Sanusi, has defended the high lending rate regime in the banking sector,  saying corruption is largely responsible for the development.

The CBN, in performing its lender of last resort function, lends to Deposit Money Banks at an interest rate of 12 per cent, while the DMBs offer loans to customers at a rate between 18 per cent and 23 per cent.

Sanusi said the huge revenue leakage in the system had prevented the reserves from rising to the point where they ought to be, adding that the development had put pressure on the naira.

The CBN governor explained that the persistent pressure on the naira, occasioned by foreign exchange gamble, had led to inflation. He added that during a period of high inflation rate, the monetary authorities would need to fight back by raising interest rate.

Sanusi spoke at the financial regulators’ debate forum at the 18th edition of the Nigerian Economic Summit in Abuja on Wednesday.

Present at the debate were the Director-General, Securities and Exchange Commission, Ms Arunmah Oteh; the Director-General, National Pension Commission, Mr. Muhammad Ahmad; and the Managing Director, Financial Derivatives Company Limited, Mr. Bismarck Rewane, among others.

The CBN governor said those calling for a reduction in the lending rate did not understand that such a move might not guarantee more funds to lenders.

He said, “The primary responsibility of the central bank is to provide stability that is conducive to growth, and in taking decisions, we need to work on the basis of evidence.

“I have heard people say the reason farmers are not borrowing is because of the current tight monetary policy and I have asked, when interest rate was at seven per cent few years ago, how much money went to farmers, Small and Medium Scale Enterprises?

“There is no empirical evidence that the real economy will get money simply because you have lowered rate of interest.”

He said that the structural imbalance in the economy needed to be addressed to enable businesses to have access to credit.

Sanusi said, “An average manufacturer hasn’t got power, infrastructure, the right skills in workers, and no access to markets.

 “A lot of things are being done to unblock the leakages from the fiscal side because some of these interest rates that you see were all from leakages; $7bn was stolen from oil, if that money had gone to reserves.”

He also said, “All those leakages ended up making our reserves to rise. Now without the reserves, people were betting against the currency and the naira was under pressure and as the naira gets weaker, you then have inflationary pressure and we, therefore, had to respond.

“So, some of the high interest rates we see were the cost of corruption and leakage in the system. Monetary policy works within an environment of (good) governance, fiscal and structural policies.”

The SEC DG, Oteh, who spoke on the infractions in the capital market, said there was a special regime for the 84 stockbrokers that benefitted from the forbearance package of the Federal Government.

She said, “Some of the brokers are considering whether to participate in this new regime and may not be interested in the forbearance package but we do believe that managing the moral hazards issue is particularly critical, and that some of the behaviours from 2007 to 2009 that led to margin finance do not repeat themselves today.”

Punch