High yield T-bills not good for economy, says Heritage Bank MD

THE Managing Director/Chief Executive Officer of Heritage Bank, Mr IfieSekibo, has joined the ranks of analysts calling for lower interest rates if only to make credit available for sectors of the economy that require funds for economic growth, particularly the manufacturing sector.

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Speaking with journalists on the sidelines  of the Vanguard Economic Submit, organised by Vanguard Newspapers in Lagos, Sekibo said “I don’t think that very high T-bill yield is very good for the economy. It implies that you will have to borrow at a very high rate.”

He said that one of the things policy makers should advocate for businesses to grow and become much stronger is for interest rates to come down so that businesses can expand and make more money.

In his view, deposit money banks are better off when businesses grow stronger and make more money, saying that deposits would increase and incidence of loans default would decline sharply.

“If we project that yield should come down, that means we are hoping that businesses would expand because interest rates would come down and then people will be able to borrow and there will be sufficient savings for them to be able to do more businesses. This implies that the banks will do better.

“On one hand we are losing from yield but on another hand, we are having a bigger position because our customers are getting advantage which means banks will do better,” the Heritage Bank’s boss argues.

He also blamed decline appetite for borrowing from banks on the situation of the economy, stressing that income flow of individuals and businesses are no longer sustainable.

“The reason for not much borrowing in the industry is that the income that will sustain that borrowing doesn’t exist. We need to create avenues to make those incomes begin to come back to life before we begin to borrow again,” said Sekibo.

He continues: “Both of these are a function of the general economy. If a sector is not growing, there is no need going to borrow because if your economy is not growing and you are borrowing in that sector, you are destroying capital rather than creating it.

“And the last thing you will want to do in a growing economy is to destroy capital. So, when you say that customers are not borrowing, customers are just being realistic,” he concluded.

Sekibo’s comments are coming few days to the 265th and maiden meeting of the Monetary Policy Committee (MPC) this year holding in Abuja between Monday Jan. 21 and Tuesday 22, 2019.

With analysts predicting rates retention at 14 percent in view of the array of headwinds against the economic both domestic and offshore, the choice before the Central Bank of Nigeria’s monetary policy decision making body is to choose between policies that enable capital formation towards the manufacturing sector and sustaining age old expensive policy of fighting inflation and supporting the Naira to keep exchange rates stable.

However, analysts believe that the current challenges of investments outflow, rates hike by the US Federal Reserve Bank, and declining accretion from crude oil earnings and rising inflation rate require at least a retention of the monetary policy rate (MPR) not only to attract interest of foreign investors but also in order not exacerbate already rising inflation, currently trending up at 11.44 percent as at December, 2018 as against 11.28 in November.

It is one of the analysts’ view that, if the MPC decides in favor of any policy shift at all, then it has to be rates hike despite the economic growth implications for the manufacturing sector already grappling with high cost of borrowing.

The MPR, which is the benchmark interest rate was retained at 14 per cent by MPC at its 264th meeting in November last year. It predicated its decision on the need to mitigate the fragile macroeconomic conditions and the strong headwinds confronting the economy, particularly the implications of investment outflow towards developed economies which lately are increasing interest rates.

Besides retaining the MPR, the MPC also held the banks’ cash reserve requirement (CRR) and liquidity ratio (LR) at 22.5 per cent and 30 per cent respectively while further maintaining the Asymmetric Window at +200 and -500 basis points around the MPR.