Banks’ lending rate to manufacturers rises to 23%

by | February 5, 2018 1:03 am

Banks’ average lending rate to manufacturers rose to 22.65 percent in the first half (H1) of 2017 from 21.4 percent charged in the corresponding half of 2016, survey carried out by the Manufacturers Association of Nigeria (MAN) shows.

This represents 1.25 percentage point increase over the period.

According to the report, lack and high cost of credit were major bottlenecks to the manufacturing sector in the period under review, urging the federal government to fast-track the Development Bank of Nigeria (DBN) to free funds to the real sector.

“It is important to fast-track the recapitalisation of the Bank of Industry (BoI) to enable it to meet up with huge credit demands of the industrial sector,” the report says.

MAN stresses the need for the government to open up access to various development funds created by the Central Bank of Nigeria (CBN) such as the N220 billion Micro, Small and Medium Enterprises Development Fund (MSMEDF) and the N300 billion Real Sector Support Facility (RSSF) by relaxing stringent conditions denying manufacturers access to these funding windows.

“It is critical to intensify the implementation of the Moveable Collateral Registry and Credit Reporting system which were recently passed into law,” MAN says.

Nigerian manufacturers are hard hit by high cost and short tenor of funds in the country, which are clogging the wheel of factory expansion across the country. The government-led DBN is yet to start operations.

Development banks such as the BoI provide funds at six to nine percent interest rate, but they are hurt by shortage of funds in the face of high demand by manufacturers, food processors and players in the creative industry.

Frank Jacobs, president of MAN, believes that only a single-digit rate of five percent can revive the sector which has been badly hit by policy flip-flops and poor infrastructure.

Financial experts, however, disagree, saying that it is impossible for banks to lend at rates below the Monetary Policy Rate (MPR) set by the CBN.

A financial expert told BusinessDay that inflation rate and MPR are key determinants of banks’ charges, stating that it may be impossible for lenders to charge any rate less than inflation numbers.

But manufacturers and business leaders say that they are not expecting any magic from banks, insisting that what they need are specialised banks like the DBN that will lend at single-digit rates.

According to Babatunde Paul Ruwase, president of the Lagos Chamber of Commerce and Industry (LCCI), access to and cost of funds remain big issues for many domestic investors.

“With commercial banks’ lending rate at between 20 and 35 percent, depending on the borrower and other factors, it is difficult by the private sector, especially SMEs, to successfully access funds.

“We note the efforts of government through the CBN and the BoI to extend intervention funds to operators. However, the range of beneficiaries and economic-wide impact remain very low,” Ruwase said at the State of the Nation address held by the chamber in Lagos recently.