CBN restricts lending relationships between banks, HoldCo

Governor of the Central Bank of Nigeria, Mallam Lamido Sanusi

In a bid to forestall another crisis in the banking sector, the Central Bank of Nigeria has placed restriction on lending relationships between Deposit Money Banks and their holding companies.

The Governor, CBN, Mr. Lamido Sanusi, said at an investors’ conference organised by Renaissance Capital in Lagos on Monday that the control was to avoid the situation where the banks would be lending depositors money to their holding companies or subsidiaries.

He said, “We have issued a circular that restrict banks to lend to their holding companies. If a bank lends to its holding company, the amount it lends will need to be returned; if not, it will be treated as erosion of capital.

“We are not saying the banks are lending to their holding companies, but we have to learn from past mistakes. How did Oceanic Bank, Intercontinental Bank and others go down? It was basically about using depositors’ money to fund other non-core banking activities.

“So, you need to put in controls that will checkmate issues like this.”

Currently, First Bank of Nigeria Limited and Stanbic IBTC Limited are the two banks with holding companies.

Sanusi said inflation rate for the month of January would be below 10 per cent.

He said, “According to our forecast, January’s inflation should be below 10 per cent. We are not in a hurry to loosen based on lamentations on the pages of newspapers.

“The monetary tightening will likely continue because we don’t agree that the high benchmark lending rate is the major reason why banks are not lending. We are concerned about high interest rate, but we must tread with caution.”

Meanwhile, the Minister of Finance, Dr. Ngozi Okonjo-Iweala, has said the government is working on how to create a development finance institution.

She said, “We are looking at sources of long-term financing. We are putting together a development finance institution so that people can get long-term money for investment.

“We now get five years from banks unlike before when it was three years. However, we want something longer than five years. We are also going to be looking at the area of sport financing too. We will be creating a lot of investment in sports in the nearest future.”

The Coordinating Minister of the Economy said the government was correcting past records of fiscal recklessness.

She said, “Our theme is fiscal consolidation and growth. We are tightening but focusing on growth. Nigerian budget spends too much on recurrent expenditure and little on capital expenditure.

“Our goal is to reduce recurrent expenditure to 65 per cent of the total budget by 2015, from the current 68 per cent.”

The Chief Executive Officer, West Africa, Renaissance Capital, Mrs. Yvonne Ike, said economic growth in Africa would happen at a faster rate, adding that Nigeria would lead the growth in the continent.

“Our estimate is that in the next three years, the Nigerian economy will be as big as the economy of South Africa,” she added.