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Monetary policy limiting bank loans – Otti

By BusinessNews Staff on April 30, 2014

The Group Managing Director, Diamond Bank Plc, Dr. Alex Otti, says the Central Bank of Nigeria’s monetary policy is currently “very tight” and is limiting banks capacity to give out more loans.

Specifically, he said with CBN’s cash reserve ratio on public sector deposits at 75 per cent and private sector deposits at 15 per cent, banks ability to create loans has been ‘constrained’ by monetary policy.

Otti, however, said Diamond Bank had set a loan growth target of between 20 and 30 per cent for the current financial year, which was the same target for the previous financial year. He spoke in Lagos shortly after the bank’s Annual General Meeting.

He said, “We do have a loan growth target and for this financial year, we are looking at something between 20 and 30 per cent. It may be more but we also look at the constraints and one of them is the monetary policy which is very tight.

“We have cash reserve ratio at 75 per cent for public sector, 15 per cent for private sector. What that means is that your ability to create loans is constrained by the fact that the central bank takes away funds and locks them up and pays you nothing. So, we are constrained by that alone.

“Of course, there are also issues we must think about like capital and other regulatory issues. We cannot run the bank without creating risk assets.”

Otti said the bank was focusing on retail banking to enhance economic growth by way of job creation, stressing that small business sector accounted for over 90 per cent of jobs in most big economies of the world.

According to Otti, a situation where banks pay attention to big businesses at the expense of small and medium scale enterprises can lead to jaundiced growth for the economy.

This, he explained was because small businesses were very important to the economy.

He said, “When we talk about SMEs, about 96 per cent of businesses in India are made up of SMEs. In China, it is even up to 98 per cent. In the United States, it is about 80 to 90 per cent. In terms of job creation, about 95 per cent jobs in China are from the SMEs sector.

He added, “You really cannot grow if you don’t focus on the SMEs. Of course, there are concerns that people will have. There are potential losses that you could make but what is important is for you to have the right skills, people and product to address the market.

“So for us, we have led the pack in the direction of retail banking and we are making a huge success out of it. We are not where we want to be yet but we have been successful. Today, a lot of people want to join us.”

The GDM said the bank was interested in long-term investors, who are interested in the long-term value of the bank, and not for short-term investors that were after temporary gains.

[Punch]

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