Are banks helping or hurting the economy?

For one or two years now, the Central Bank of Nigeria’s Monetary Policy Committee has retained the monetary policy rate (MPR) at 14%. The MPR is just a peg, the lowest interest rate a bank in Nigeria may charge its customer. Of course that applies between banks. When an “ordinary” bank customer approaches a commercial bank for a loan, the story is always different. They get nothing below 25%, but it could be as high as 35% for some customers.

We’re still not ready to encourage entrepreneurship in Nigeria, and it’s the reason bad debts will never evaporate from the banks. Were Steve Jobs or Mark Zuckerberg Nigerians, they would never have set up their companies. They would have died of frustration like 35-year-old Dr Allwell Orji who committed suicide in Lagos last Sunday.

Many banks are hurting rather than helping the nation’s economy. As someone stated during a radio programme Saturday morning, many bank customers have lost more money to their banks than to armed robbers.  He was referring to the excess charges recovered from the banks through the efforts of his group. Ever ready to collect deposits they could do business with – and impose charges as they wish – Nigerian banks seldom give money to struggling entrepreneurs.

Other “entrepreneurs” understand the game very well, however. They know that the best way to rob a bank is to set up one. As in the era of “wonder banks” and finance houses, the tested path is to set up a bank, carefully collect the deposits of millions of customers, give loans to yourselves (the directors) and then allow the bank to collapse. Several crooks of the 1990s turned billionaires that way. They fled the country and awaited a change of government, a change in policy or a change of the regulators. Then, they quietly re-entered the country and set up new businesses.

Those who set up businesses could even be forgiven; at least, they employ many people and therefore help to put food on the table. The actual buccaneers simply enjoy their loot in foreign countries. Some pretend to work by importing useless items into the country. Lazier ones are into organised crimes: armed robbery, piracy, oil theft, 419, gunrunning, drug trafficking.

When the CBN was forced to start publishing the names of bad debtors, that is, non-performing loans, five years ago, we thought that the policy of “naming and shaming” them would be sustained. Early in 2015, some more were named in published advertisements, even as the apex bank kept warning chronically indebted individuals and companies to pay up or be shamed.  Not much has been heard since then. Does it mean the N14trillion said to be trapped in the banks then has been paid up? No. It’s simply that the debtors, the banks and the regulators have found fresh friendship.

Nevertheless, that publication was instructive. It revealed that many rich people were actually chronic borrowers, and that banks were the main accomplices of economic saboteurs. One man owed different banks more than N200billion!

Behind every source of wealth is a crime, we are told.  And so we used to limit the sources of wealth in Nigeria to politics, 419 and drug peddling.

Is taking loans from banks a crime? Not really. In fact, it takes more than honesty to qualify for a bank loan: you must be aged 85 years and accompanied by both parents! You have to show that you are already rich (and therefore don’t need the loan) by providing collateral worth three times the loan you seek.

Nigerian banks know that there is no business at the moment that can return 20% profit to its owners. That’s why they fund mainly imports, especially petroleum products.. Often, they import fuel or other fast-selling products themselves.

Even when you have a bright idea, the bankers could steal the information from you and fund the project for someone else. If you are lucky to get a loan, the bank ensures you work for it for the rest of your life – your profit or salary will be just enough to service the loan.

The banks are sustained by illegal transactions like imposition of excess charges on customers’ deposits, and round-tripping. The latter is a process of buying foreign exchange from the CBN under the pretext of importing items but returning the dollars, euros and pounds to bureaux de change and currency hawkers. I have severally advocated the scrapping of CBN’s weekly forex sales to banks, if for six months.

I borrowed two of my life-guiding philosophies from Shakespeare: Neither a lender nor a borrower be. Never envy any man until he has lived and died.

Though it’s near-impossible to take the former advice, it pays to do so. When someone tells you to lend him money, he wants you to give him money but is only trying to redeem his ego. It’s better to give him a fraction of what he seeks, as a grant and not a loan.

The second Shakespearean advice is also meant for honest Nigerians: Do not envy those who flaunt riches, who boast, who maintain luxurious lifestyles. As the debtors’ lists published in the past have shown, most of them live on borrowed funds.

It’s ironical that many Nigerian banks declare huge profits even in times of recession. They will continue to reap profits for as long as governments encourage corruption or leave loopholes unplugged.

The best indicator of a healthy economy, however, is the state of the real (manufacturing) sector. The economy will begin to recover when ingenious Nigerians begin to receive loans from banks easily and at low interest rates – not more than 3%. Such loans may not go bad if there’s regular supply of electricity.

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