Senate President, Dr. Bukola Saraki

The Senate, Nigeria’s upper legislative chamber on Monday, came under heavy criticisms over its position on the current high cost of accessing funds from the banks and other financial institutions in the country.

Senate President Bukola Saraki had while reviewing the activities of the 8th Senate in the last two years in an interactive session with journalists on Sunday in Ilorin, hinted that that the upper legislative chamber would invite the Governor of Central Bank of Nigeria CBN, Godwin Emefiele to make some explanation on the current high interest regime.

This is with a view to  looking into the high interest rate charged borrowers by banks in the country, which is between 18-22 per cent, especially given the negative effects of such high cost of funds in the manufacturing sector, including the Small and Medium Scale Enterprises SMEs, which ought to be the engine of the economy.

Meanwhile, some stakeholders, who reacted to the proposed invitation, took a swipe at the upper chamber, saying it is being economical with the truth.

A financial expert, who spoke on the condition of anonymity, said that given the current economic indices in the country.

According to him, there is little or nothing the commercial bank would do in a situation whereby the CBN retains the monetary policy rate, MPR, at about 14 per cent, and cash reserve ratio, CRR, at 22.5 per cent.

The MPR is the rate at which the CBN lends money to commercial banks, while CRR is a monetary tool used to either call up excess liquidity in the system, or release funds needed to stimulate the growth of the economy as situation demands.

The apex bank also retains the liquidity ratio at about 30 per cent, with the asymmetric corridor at +200 and -500 basis points around the MPR.

He also argued that the CBN’s hands also seem tied as it is facing challenges with the major economic indices in the country, which are currently not friendly.

He listed such challenges to include but not limited to the persisting inflationary pressures, continuing output contraction, high unemployment rate, elevated demand pressure in the foreign exchange market, low credit to the real sector and weakening financial system indicators.

The Senate President had said that the upper legislative chamber might likely debate the matter this week.

He said: “The high interest rate is not good for the economy as the nation eases out of recession and targets growth”.

“This week we will debate it, have a round table discussion with the CBN and other commercial banks and talk frankly to ourselves”

“Hopefully, with the stability of the foreign exchange, we can now begin to address the issue of interest rate.

“There is no business that can make money if you are borrowing at 28 percent, it cannot work,”

According to him, it is not fair for the banking sector to be making astronomical profit while companies lose money and retrench workers.

He said the Senate would engage financial institutions to arrive at an affordable interest rate, adding, “if they refuse, the Senate may come up with legislation to peg the interest rate.”

According to him, the banks are charging high interest rate because they have tied their assets in government securities and are getting 18 to 19 percent.

“They will tell you they are doing business, but in any business, there must be social responsibility.

The Senate president also said the upper chamber may limit the amount banks can put in government securities and channel the rest to areas like the real sector.

He expressed concern over the status of local governments in the country, saying virtually all local councils lacked the required finances to carry out their statutory obligations.

“I am of the view that we should look at how state governments take over primary education.

“This is an arm of government that cannot meet its constitutional obligations and you now put a very important one under it.

“Over 95 per cent of local governments depend on state governments’ support to pay workers salaries”, the Senate President had also said.