I am just reading from the Independent, UK.. that Britain’s economy is fragile because UK banks are not providing the economy with the money that it needs to grow. Simply put, the banks are not lending.
Still on the banking sector, according to the Associated Press, the US President Barrack Obama berates the big banks that got federal bailout funds for not doing enough for business, particularly small businesses. According to Mr. President, the big banks should return the favour done them by the federal government!Nearer home, a fall out of the recent banking reform has been the erosion of consumer credit. Adverts by banks offering loans for cars, generators, white goods, etc have all but evaporated from the media. This erosion of credit is coming too soon for the Nigerian who was just beginning to benefit from the flexibility that credit finance offered.
The banks on their part have conveniently used the banking reform as an excuse for discontinuing the consumer credit drive. This is unfortunate for a host of reasons.
Before delving into the negative consequences of the reticence by banks in Nigeria to do what they are essentially established to do in the first instance, i.e. lend, it is necessary to consider what sort of environment Nigerian banks operate under and the culture of banking in Nigeria.
The Nigerian business climate is generally adjudged to be hostile, difficult but offering huge returns on investment particularly when compared to the more sedate and conservative climes of Europe and the USA. Historically the Nigerian banks have done very well and fortunes have been made by both investors (owners) and well placed managers in the sector.
Interestingly, although decoupled from the world financial system due to the high levels of fraud, corruption and drug and related laundering, Nigerian banks have been able to hold their own no thanks to servicing the oil sector which is essentially the driver of the local economy.
The pre-consolidation era of banking in Nigeria was characterised by a mix of banks in various sizes offering niche services and defined by regional ownership, family ownership and staid customer services.
Banks generally ignored the consumer and tended to focus on corporate clients particularly public sector where cheap funds where easily sourced from corrupt government officials who in return received their bribe in the form of “interest” on deposits.
Nigerian banks have traditionally been hostile to the consumer and lacking in creativity with regards to the range and quality of services offered.
The consolidation exercise gave some impetus the banking sector primarily because, it provided a stash of excess liquidity which enabled some form of consumer banking to be embarked upon.
The speed at which consumer credit has now been withdrawn gives credence to the belief that the provision of credit finance by many Nigerian banks was not a core strategic business from the onset and was merely window dressing to make the banks appear modern and up to date with banking practices abroad.
Nigerian banks are essentially hostile to the consumer, abhor lending and when they choose to lend insist on stringent conditions that make the borrowing highly expensive and risky for the borrower. Despite this, banks prior to the consolidation and before the ongoing reforms posted jumbo profits.
One positive outcome of the current reform exercise is that it has brought on a more introspective look at banking practices and banking culture in Nigeria. The findings are anything but impressive.
In a mono economy dependent on oil, many queried the basis on which the banks were able to report jumbo profits when hardly any lending was going on, manufacturing was comatose and the economy as a whole underperforming on all indices. Well, no thanks to the “reform” the chickens have come home to roost.
Trust the banks to single out the consumer as the first pick for collateral damage, no pun intended. The profits were cooked… disguised to hide toxic assets, ineptitude, graft and fraudulent practices by bank executives who prior had acquired super star status and were feted by all for their skills in financial alchemy.
As far as banking in Nigeria goes, we the consumers are back where we started, i.e. unable to purchase new cars and gadgets, locked out from flexible finance schemes and with no means of avoiding the risk and inconvenience of cash based transactions in day to day life.
Some of the banks executives are briefly holed up in jail where they should be residing permanently and yes, you guessed right the Nigerian economy is no better despite all the promises and claims by the banks! Perhaps President Obama and his UK counterpart need to take a look in to the Nigerian banking experience to gain a deeper insight into how banks exploit government largesse, abuse the free market and emasculate consumers and small businesses.
