65% LDR policy has put banks under pressure — Prof. Ajibola

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The former President, Chartered Institute Of Bankers Of Nigeria (CIBN), and professor of Economics at Babcock University, Ilishan, Ogun State, Professor Segun Ajibola  in this interview x-rays the Nigerian economy and the banking sector in particular.

What is your view on CBN’s Naira to Dollar policy?

As you likely know that the Dollar market is very volatile, especially in an economy like ours that is still monolithic in nature.About 80 per cent of our foreign exchange earnings is from oil. Whenever there are shocks in the global oil market, it affects our foreign exchange earnings and the overall performance of our economy. So that put the monetary authority under pressure in the management of the economy via earnings from various sources of foreign exchange free flows. With the volatility in the global oil market, there is the need to diversify Nigeria’s foreign exchange earnings and one beautiful bride discovered recently is the potential from the remittance – inflow into the country by the way of earnings.

If you look at the concentration of Nigeria across the globe, it is always a source of strength not only to Nigeria but countries where they reside. Up till now, remittances have been coming into the country through means of consumption, school fees and social events.

The CBN is saying that country must be more strategic in the control of remittance into the country. When you are being strategic, the question by the diasporas is what is in it for them to remittance and earn more naira? I think is a way of encouraging them to add revenue from dollar inflow in Naira terms in diaspora remittances. Nigerians across the globe are into legitimate businesses. It is a responsible economic fundamental, giving those in diaspora extra earnings as they bring more foreign exchange into the country.

Do you agree with former CBN Governor, Alhaji Sanusi Lamido Sanusi that Nigeria was setup to fail?

That is a political statement and I was not there when it was setup. The question is if Nigeria was set up to fail, should we Nigerians work towards Nigeria’s failure? Why can’t we reverse that if it was set up to fail? It is the responsibility of the former Emir of Kano and others to work towards reversing such templates to make Nigerian settings work.It is a challenge for everyone  to make Nigeria work. The present generation must change the narratives about Nigeria becoming a fail nation.

Is there any economic sense in FG rehabilitation of Port Harcourt refinery with $1.5billion amidst Dangote Refinery, other modular refineries coming up?

I don’t have the facts but going by reports, analysts have said that $1.5billion can get us a sizable refinery. The questions are many. If we are spending $1.5billion to revive a moribund refinery, what is the capacity? What is the likelihood that the rehabilitation will be long lasting? Will it meet modern specification?Looking at it from afar, one may likely question the economic sense of the rehabilitation of the Port Harcourt Refinery with $1.5billion, Like I said, analysts can’t do that until we have all the facts. Looking at it from afar, the decision by the government raises some fundamental questions.

Some banks in 2020 lowered their risk appetite in line with the poor shape of the economy. At the same time, they wanted to meet the 65 per cent LDR ratio policy of the CBN. How do you think banks can manage this dilemma before them?

It is a big dilemma and as you likely know banking isnot a charity organization. Banks lend when there are bankable proposals before them unless they have turned their offices to charitable institutions. If banks have to observe the fundamentals of lending, they have to look out for bankable proposals. The LDR policy has put banks under pressure in which case, they can start accommodating some prime proposals.We should not forget that COVID-19 created dislocation in the global economy and Nigeria suffered a lot. If banks out of desperation start looking for how to meet the LDR, it becomes a buyer market. Banks will start to accommodate anybody that approaches them for lending. Then, we may be building a bomb that is likely to explode with time. Banking lending is not a business taken likely but the way we are going, we may pay the price when the time comes. The 65 per cent LDR policy shows that there is a disconnection between monetary authority and the operators. I completely disagree with the LDR policy and I have said it times without a number. There is a need to reconsider that policy as some of us have expressed anxiety about the policy. Even without the policy, banks are still struggling to breathe under the burden of Non-Performing Loan (NPL). Irrespective of official figures, somebody said if the portfolios of banks are properly scanned, NPL in the banking today will hover around 20 per cent- This is a risk for shareholders and the economy at large. If you compound that situation with desperate lending, banks are in a very challenging moment in the banking industry in Nigeria.

The IMF had projected 2.5% economic growth for Nigeria for 2021 and a former CBN director said Nigeria economy has what it takes to grow at double-digit. What is your view about Nigeria economic growth this year?

All these are speculation that we can grow at a double-digit. If somebody said we can grow at a double-digit rate based on our endowment, I will say it is possible but what will make it a reality is the question. Is it the way we go about our policy in this country that will lead us to double-digit economic growth or the various disconnection that we have between planning and execution that will make us grow at a double-digit? Is there a political will to do the right thing that will make us grow at a double-digit? The IMF 2.5 per cent growth rate is possible this year. We have reversed the negative growth rate. Amid the COVID-19 easing policy and intervention, the 2.5 per cent economic growth rate is the least we should achieve this year.

Nigeria is currently battling with stagflation. What are the ways you think we can manage this situation?

We need to rejuvenate the various sectors of the economy. There are some sectors begging for attention and exploration given the trend of the global day modern economy. We know COVID-19 has been a major setback but we still have a lot of opportunities in tourism, entertainment, SMEs and Information & Communication Technology (ICT). If we can sustain the various attentions that these areas have been receiving supports, as regards ease of doing business, incentives, then we can be able to grow the economy and curb the rising inflation rate in the country.

Do you think the CBN will be able to unify the nation’s multiple foreign exchange rate?

It has never been easy for any monetary policy in the world to unify its foreign exchange rate.

The convergence of the exchange rates is one of the most difficult tasks before any monetary policy and Nigeria is not an exception. The problem is that there are so many gaps in foreign exchange management globally. It is not only a Nigerian problem. Operators are always smarter than the regulators’ ditto end-users. When you try to match the rates in over 30 years in Nigeria, the more you try to converge, the more you see new developments. As you likely know, we can’t print Dollar and we are to manage what we have. The rates unification can’t happen by miracle.

How can CBN’s intervention be felt amid the increasing inflation rate, coupled with banditry and kidnapping of farmers?

CBN can only play its intermediary role as a lender to banks. There are so many other factors that determine economic growth beyond the CBN intervention in the key economic sectors. This is the reason all hands must be on deck if the CBN intervention must be felt in the nation and reduce the rising inflation rate in the country. If the CBN can provide intervention in the key sectors of the economy to tackle foreign exchange challenges and create jobs, those responsible for providing security must work towards that.

Those who introduced ease of doing business and infrastructures must be active in providing security or else we will not feel the impact of CBN’s interventions in agriculture, SMEs, among others. All levels of authority must do the right thing for us to achieve the desired growth in our economy.

The unemployment rate according to NBS reached 33.3 per cent in Q4 2020. How can stakeholders tackle the unemployment rate in the country?

The growing unemployment rate is everybody’s business. Let everyone start thinking of the Chinese and Indian models, where everybody is an entrepreneur. Why can’t we be producers rather than consumers? Today, China is educating everybody to become an entrepreneur. India is also following the same model. We shouldn’t be producing graduates that are looking for jobs but creating jobs. Let’s have a package that enabled economic reliance on individuals.A package that will make a graduate look for what to develop and earn a living rather than looking for jobs that do not exist. So many things are affecting job opportunities today. The environment is becoming more paperless as technology has taken over.

We have huge opportunities in the agriculture value chain, SMEs, among others. There is a need for change in our orientation.  And paradigm shift. Rather than looking for jobs, we need to start asking ourselves what we can do to create jobs. The role of the government is to create enabling environment for that orientation to work by working on the minds of Nigerians.

Our population and number of graduates are increasing every year and millions of graduates are looking for jobs. We need a total paradigm shift from a job-seeking country to a mentality of a job-creating country if we desire the unemployment rate to drop.