Zenith Bank Group Managing Director, Mr. Ebenezer Onyeagwu has bared his mind on some banking issues.
He said; “Our cost profile depicts the operating environment. Within the year we saw an upward review in fuel price, which accounted for the increase in our fuel cost.”
“Again, when you are looking at cost of doing business, you also need to look in total, how businesses are being conducted. If I set up a branch today, I would need to provide my infrastructure, I need to provide power, water and in some cases, we even construct the road to provide access to the branch location.”
“So, as a result of the poor state of infrastructure, you see that businesses would now have to contend with providing these resources to get their operations running.”
“So, if we have more available and cheaper utility services and infrastructure to support businesses, of course, the cost would go down.”
“Then, looking at cost of doing business in banking, it goes beyond those operational costs. We also have things like regulatory cost. A bank like Zenith, given our size, the burden of regulatory cost on us is heavy.”
“By regulatory cost here, I am referring to the Nigeria Deposit Insurance Corporation premium and the Asset Management Corporation of Nigeria fee.”
“So, because of our size, if you look at the numbers, you will see that these regulatory costs account for a whopping 28 percent of our overhead.”
“So, all of them come together to add to the cost of doing business for us as a banking institution in the country.”
“First of all, if you are looking at the interest rate, you have to look at it in terms of the theoretical framework and issues around money supply, demand for money, issues around government borrowing, and the fiscal deficits.”
“So, when you put all that together, you will see that you cannot have a situation where you decree interest rate by fiat. Interest rates would always be set by the dynamics and realities in the market.”
“In this case, if you are looking at the interest rate in Nigeria, you have to index it to the risk-free rate. The one-year risk-free rate in Nigeria is like 10 percent. So, it will be difficult to have a single-digit rate in Nigeria.”
“We have intervention funds such as the Creative Industry Financing Initiative, where banks in the country provide long-term single-digit funding for entrepreneurs who are in cinema, movie, ICT, and fashion designing. We also have what is called the Agri-Business/Small and Medium Enterprise Investment Scheme.”
“It is also a pool of funds available for businesses in that space. You can as well access these loans. Apart from these, the CBN also has different intervention schemes such as the Anchor Borrowers Scheme, the Commercial Agricultural Credit Scheme, and others, and all these loans are single-digit and they provide long-term financing.”
“The big problem we have is that when you see an SME approaching you for the loan, the SME may not have a track record; he walks up to you and tells you that he needs a single-digit loan and needs N20 million.”
“But I can’t give you N20 million without looking where you are coming from. So, we cannot decree the interest rate by fiat. But the regulators have done good work by providing funding schemes and whoever is eligible would get such single-digit long-term loans once they meet the criteria. So, the funding is there, but the SMEs when they approach the banks don’t often meet the eligibility criteria.”