Why Sanusi Should Unlock Credit Market


Recently, there has been waves of criticisms directed against the banking reform of Lamido Sanusi. One of the issues involved is the CBN policy statement saying that the apex bank must have inputs in the appointment of the managing directors of the banks. Critics now wonder if the apex bank had inputs when Lamido Sanusi was appointed the MD of First Bank Plc.

Responding to his critics, Lamido said CBN must give final approval before a bank’s MD appointment is confirmed. He further said that though it used to be the exclusive responsibility of the Board of Directors to employ banks’ MDs, this privilege has been abused in the past. He said the board of directors will appoint their family members or friends who are not qualified for the post and leave out very qualified professionals who are not family members or friends. He said further that the quacks employed cannot manage the banks effectively. Consequently, the banking industry suffers.

Another very important source of controversy is the monetary policy of Lamido Sanusi who was appointed Governor of Central Bank on 4 June, 2009. Prior to his appointment, the saving deposit interest rate stood at double digit and the rate of inflation too stood at double digit. In economics, there is a psychological link between the Savings Deposit Interest Rate and the Rate of Inflation.

Sanusi on assumption of office, complained that the double digit interest is too high. He was silent on the double digit rate of inflation. He promised to bring down the Savings Deposit Rate of Interest to as low as two per cent and he did exactly that. Meanwhile, the loanable fund interest rate went as high as twenty eight percent for manufacturing sector and twenty five percent for agriculture. Now the critics are saying that Sanusi has locked up the credit market as a result of this decision which they describe as tactless, and unintelligent.

The insurance industry are badly hit but this policy. According to their spokesman, they keep insurance and pension money in the bank and get only two percent. They are allowed by law to invest in the stock market, that is buying and selling of Government Bonds. They are also allowed to invest in koney market, that is taking money to banks for interest rate. These are their main sources of income. The banks that give them two percent for their deposits collect twenty eight percent from investors when they loan out the same money. The insurance spokesman sees this as being unfair.

The Manufacturing Association of Nigeria (MAN) too is complaining.  The reason for the capital flight is because in the money market which is banks, depositors get only two percent interest rate while in the real economy depositors will take advantage of the fifteen per cent rate of inflation.

Manufacturers’ spokesman said further that loanable fund interest rate at twenty eight per cent for manufacturing is intimidating and too expensive for manufacturers. He said investors will go for loanable fund if anticipated profit margin is higher than the prevailing or obtainable interest rate in the money market.

Manufacturer’s spokesman wonder why the banks are charging as high as twenty eight per cent when they pay as little as two per cent for the same money. As a result of this policy, the manufacturers have not been accessible to loanable fund since the arrival of Lamido Sanusi as CNB Governor.

If we critically examine the credit policy of CBN under Sanusi, we are forced to ask: What does Sanusi hope to achieve pegging saving deposit at two per cent and leaving rate of inflation at between twelve and fifteen percent? The only visible consequence is capital flight from the money market which is the banks to the real sector of the economy. Or how do we explain the banks charging twenty eight percent interest rate for manufacturring and twenty five percent interest rate for agriculture on loanable fund?

Sanusi must understand that human productivity is directed towards the satisfaction of human  needs. He should also understand that the wealth of a nation is the total wealth of its citizens.

Sanusi must know that wealth is not money either in or outside the banks as demonstrated by the billions of of naira he gave to the airlines very recently. From this explanation, I know Sanusi will agree with me that labour alone when employed or engaged in economic activities creates wealth. Sanusi must have, as CBN Governor, full employment of  labour at the back of his mind and this can only be achieved if he unlocks the credit market. He must allow the principle of demand and supply determine saving deposit interest rate instead of arbitrarily fixing it at two percent.

He must try to bring down loanable fund interest rate so that loans can be accesible to investors.

•Ajayi wrote in from ACME Road, Ogba, Lagos.

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