The House of Representatives has called on the Central Bank of Nigeria (CBN) to review the Monetary Policy Rates (MPR) to curb the issue of high lending rate, while also help in ushering in a new interest rate regime that would support enterprise development in Nigeria.
The House gave the directive Wednesday following the adoption of a motion brought by Hon. Fatoba Olusola on the need to investigate banks’ lending practices, protect borrowers from exploitative interest rates and promote economic development.
Olusola said that the current lending interest rates of commercial banks are as high as 30 per cent, making Nigeria one of the countries with the highest lending rates in Africa, and probably the world.
He explained that the lending rates are largely determined by the MPR set out by the CBN, hence, the higher the MPR, the higher the interest rates charged by commercial banks.
Olusola noted that the MPR is held at 14 per cent, while that of South Africa, the longtime economic rival of Nigeria is at 6.5 per cent, making Nigeria one of the top five countries in Africa with the highest interest rates.
He expressed concern that the lending interest rates of banks restrict lending, particularly to Small and Medium Enterprises (SMEs), manufacturers and industrialists, all belonging to a sector which employs a large percentage of the workforce in Nigeria.
The lawmaker lamented that the lending rates impede economic growth as it impacts negatively on the performance of the manufacturing sector due to the difficulty of accessing loans from banks.
Olusola said taking into cognisance that banks are the primary sources of capital for manufacturers and industrialists, but stressed that when lending is at a high interest rate, profits in the manufacturing process are eroded which makes it difficult or unattractive for manufacturers to continue in business.
He stated categorically that the resolve of President Muhammadu Buhari to lift 100 million Nigerians out of poverty might be difficult to achieve if the issue of high lending rates and the challenges of having access to loans are not critically addressed.
Olusola pointed out that when interest rates are high, investors and banks are often willing to invest in government securities only which pay high returns, a phenomenon known as crowding out, adding that high interest rates on government securities draw investments away from other areas of the economy.
He explained further that high interest rates cannot both contain inflation and stimulate economic growth at the same time, while in reality, citizens, SMEs, manufacturers and
investors are bearing the brunt of the “cut throat” lending rates where the banks and their directors remain the major beneficiaries of the high lending rates.
Against this background, the House called on “the Central Bank of Nigeria to review the Monetary Policy Rates (MPR) and its implementation, putting into consideration the cost of doing business by banks;
“Urge the National Economic Council to critically consider how to reduce the cost of doing business in Nigeria in a manner that the common man will feel the impact;
“Mandate the Committee on Banking and Currency to interface with commercial banks to ascertain the justification for the big gap between the MPR and the lending rates”.
The House also mandated the Committees on Banking and Currency, Finance, and Industry to organise a round-table session with the CBN, banks, the Nigerian Deposit Insurance Corporation (NDIC), SMEs, the Manufacturers Association of Nigeria (MAN), industrialists and industry experts with a view to finding immediate, sustainable and lasting solutions that would help usher in a new interest rate regime that would support enterprise development in Nigeria.