The President/Chairman of Council of the Chartered Institute of Bankers of Nigeria, Segun Ajibola, says bank loans are vital to economic growth and there is a need for the Deposit Money Banks to enhance credit to the real sectors of the economy.
Ajibola said this during the third Inaugural Lecture of Caleb University in Imota, Lagos State.
He spoke on, “Rhythms and Riddles of Bank Credit: Synergies and Dislocations in Nigeria’s Economic Growth.”
Ajibola, a professor of Monetary Economics, argued that a well-functioning financial system was a key enabler of economic growth.
He said, “Indeed, banks play an important and active role in the economic development of a country. If the banking system of a country is effective, efficient and disciplined, it will bring about rapid growth in the various sectors of the economy.”
The don noted that bank credit was an important determinant of the level of productive investment in any country.
The CIBN chief stressed that mobilisation of savings for investment was one of the most important preconditions for accelerated growth and development.
He explained, “While investment generates savings, it is impossible to sustain a sound investment effort without adequate savings mobilisation; this is where banks come in with their credit management and money creation.
“The economic importance of banks, therefore, lies not in their monetary role but in their capacity as financial intermediaries. At a first glance, intermediation may seem a rather innocuous process – lenders are matched to borrowers. Upon further inspection, however, it is clear that intermediation is a crucial economic process.”
He identified bank loans and advances as the major financial backbone to the Nigerian economy. Ajibola, however, said that this function of banks had been impeded by poor credit/risk management, poor loan recovery, frauds and forgeries, persistent bank robbery, insider dealings/abuses, shareholders’ interference in credit policy and lack of political will to deal with numerous credit abuses.
In his recommendation, the don called on banks and other financial institutions to continue to play the critical intermediating role in the economy by creating a veritable link between the surplus funds units and deficit funds units of the economy.
He also noted that an equitable lending structure should be developed for all the sectors in the economy for inclusive growth.
The CIBN chief said, “Banks should also redefine their lending behavior to favour longer tenor loans which are more impactful for the real sectors of agriculture and manufacturing in the country.
“For bank credit to have the desired effects, however, the other related variables in the economy must be effectively managed. Such variables include inflation, foreign exchange, political stability etc. A priori wise, these are relevant variables in our type economy. Political instability, for example, scares away foreign investors, another key driver of economic growth. Results of our various econometric analyses confirmed the relevance of these other variables.”