Bring Inflation Down to 5% to Stabilise Economy—Peterside Tells CBN
By Dipo Olowookere
Says Investors Mopping up Forex Over Devaluation Fears
CBN’s 65% LDR Policy for Banks Punitive
One of the most respected bankers in Nigeria and former Group Chairman of Stanbic IBTC, Mr Atedo Peterside, has faulted the decision of the Central Bank of Nigeria (CBN) led by Mr Godwin Emefiele, to increase the loan-to-deposit ratio (LDR) for deposit money banks (DMBs) in the country.
In mid-2019, the apex bank directed commercial banks in the country to ensure 60 percent of their total deposits were given out to customers as loan, warning that failure to comply by September 30, 2019 would attract fine.
After the deadline, some lenders were sanctioned by the CBN and the LDR further raised to 65 percent with a new deadline of December 31, 2019 fixed for full compliance.
The central bank had explained that this policy was to “sustain the momentum,” noting that the ratio would be subject to quarterly review, in order to encourage SMEs, retail, mortgage, and consumer lending.
But Mr Peterside described this policy as punitive to banks because of the present economic situation in the country and the world in general as a result of the coronavirus also known as COVID-19, which has paralysed business activities across the globe.
The business mogul, speaking when he was conferred with honorary fellowship in Lagos at the weekend by the Chartered Institute of Stockbrokers, said the present inflation rate, at 12.13 percent in January 2020, coupled with low yield in the fixed income market, would make it difficult to attract investors.
He said to make the investment environment conducive, re-build investor confidence and help stockbrokers to overcome market burn out, the CBN must work hard to bring inflation down to about five percent.
“The Central Bank of Nigeria has increased the loan to deposit ratio, which requires banks to make loan or stop collecting deposit.
“With the current low interest rate, the policy is punitive. The CBN should bring inflation down to five percent to stabilise the economy,” Mr Peterside said during the induction of 62 newly qualified stockbrokers into associate members.
He absolved stockbrokers of the blame for persistent selling pressure with diminution of share values on the Nigerian Stock Exchange, saying their hands are tight.
“The problem of the capital market is not the fault of stockbrokers but that of macroeconomic stability framework. In Nigeria, the inflation rate is currently 12 percent compared with two percent in the United States of America,” he declared.
According to him, the present situation in country may lead to the eventual devaluation of the Naira. He said The inflation rate in Nigeria provides incentives for devaluation of the Naira and many investors fear devaluation.
The fear of devaluation of the Naira in the wake of 12 percent inflation rate with potential for further increase had elicited flight for safety, as local and foreign investors were taking short term bet on foreign currency as a hedging strategy, he noted.
“The fear of devaluation in itself is pushing many investors towards buying foreign currency as a short-term bet to speculate exchange rate,” he said.
However, he emphasised that macroeconomic stability, especially low inflation rate regime, remains a major as tool both fiscal and monetary authorities can use to attract all types of investors into the Nigerian capital market.
President of CIS, Mr Adedapo Adekoje, while speaking at the ceremony, explained that Mr Peterside was honoured by the institute’s board in recognition of his intellectual and professional contributions to the growth and development of the capital market and economy as a whole.