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Bankers blame FG agencies, CBN for high interest rates
Oluyinka Akintunde, Abuja
Ahead of the Bankers Committee meeting on Tuesday in Abuja, the Bankers' Subcommittee on Monetary and Fiscal Policies has blamed the rising interest rates and cost of funds on the activities of the Central Bank of Nigeria and the government agencies and parastatals.
The interest rates charged by banks currently ranges between 25 and 30 per cent as against 19 per cent if the CBN cap of not more than four per cent above the minimum rediscount rate were to be applied. The MRR is presently 15.5 per cent.
The Subcommittee in its report forwarded to the Bankers' Committee, said that high interest rate by banks has been fueled by the continued high deposit rate demanded by government agencies and parastatals before placing their funds in the banks.
More than 70 per cent of banks' deposits come from the public sector of the economy, necessitating the scramble by banks for government funds notwithstanding the high deposit rates of 20 to 25 per cent often times demanded by government officials and agencies.
In the report, obtained by our correspondent, the subcommittee flayed the occasional threats by the CBN to withdraw public sector deposits in banks, noting that this has usually tended to induce pressure on interest rates.
"The CBN should put in proper perspective the issues of withdrawal of public sector funds from banks so that it would not constitute a shock to the system. Occasional threats by the CBN to withdraw public sector deposits in banks, which usually tend to induce pressure on interest rates," it stated.
It identified other factors contributing to the increasing level of interest rates in the country as: the rising inflation trend, which makes it necessary for depositors to ask for high interest rates, and the increasing high cost of doing business occasioned mostly by infrastructural failure in the economy.
"The present inflation rate of 19 per cent has caused the demand for higher rates from owners of funds, making deposit rates to continue to be on a rising trend. In spite of the new trends banks are restricted to the four per cent above MRR ceiling, which does not cover overhead expenses," the Subcommittee said further.
It noted that the issue of inflation rates was very critical to ensuring a downward trend in interest rate.
The report said furher "The subcommittee equally felt that government's inability to meet its obligations under the tripartite agreement on interest rate reduction with the CBN and the banks had dislocated the envisaged gains from the agreement.
"It therefore felt that the fundamentals upon which the agreement was reached had changed and there was a need for all parties in the agreement to revisit it soonest, if progress must be made.�
The Punch, Monday July 05, 2004
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