There seems to be no respite yet for the prostrate real sector of the Nigerian economy as fresh belt-tightening measures adopted by cash-strapped banks are taking a heavy toll on its operators.

Since the manufacturing sector drives national development, the ugly scenario in the industries has spread to other spheres of the national economy. For instance, the current fuel scarcity is attributed to lack of short-term credits from banks to bring in more petroleum products by importers.

The Federal and state governments, which often filled the funding vacuum left by the banks, have not fared better. Last year, the performance of the national budget was put at 50 per cent by some firms' chiefs. This year, the situation, they said is worse as no significant economic initiative has been embarked upon by the government.

Worried industry chiefs, who alleged that the banks have shut almost all credit lines to them, feared that the state of the manufacturing sector might worsen in fiscal 2010.

In their assessment of the national economy and the impact of the ongoing reforms in the banking sector, the firms' chiefs told The Guardian that unless policies that favour the manufacturing sector were adopted by the Federal Government, the current credit squeeze may force them out of operations.

They lamented that the Central Bank of Nigeria (CBN) reforms in the financial institutions had weakened the capacity of banks to fund the real sector. Speaking separately with The Guardian, the operators stated that credit lines from banks to them had almost dried up. The firms' chiefs however accused the banks of ignoring government's directive to give priority to funding of the real sector of the economy.

The President, Manufacturers Association of Nigeria (NAN), Alhaji Bashir Borodo, said: "The directive by the Federal Government to the banks to make lending to the real sector of the economy a priority has not yielded much fruit. This is because the banks are still trying to get their bearing with the ongoing reform and as such, they have virtually stopped lending. Their major pre-occupation has been how to recover the funds outside. The banks are even stricter now in lending to manufacturers, particularly the small and medium scale enterprises (SMEs), which do not have adequate collateral, for fear of entering into bad debt."

To the chairman of Ecobank Plc, Chief John Odeyemi, in the past six months when the CBN embarked on the reform, lending had ceased, while government was only able to implement the budget by about 50 per cent.

"This means that government is not spending, so the people are not getting what they need, and the banks can't spend because of the toxic assets and the direct influence of CBN on lending," he said.  Odeyemi noted that in spite of the unpalatable development, most banks were yet to meet the conditions of the CBN that would enable them to start lending fully.

"You can therefore imagine the level of the constraints. Public funds are not coming, banks' funds are not coming, and these are the two major sources of generating money for the economy."  He therefore urged the CBN to "heavily energise and persuade" the banks to move the economy forward.

"The public needs to stop being docile. Stakeholders need to talk to their representatives in the National Assembly and the Executive arm of government so that money can move to all sectors of the economy. That is why fuel crisis has persisted; housing development country-wide is stalled; agriculture and real sector financing is also stalled. So, it's a chicken and egg situation."

Also, the President of Lagos Chamber of Commerce and Industry (LCCI), Chief Femi Deru, appealed to the CBN not to be contented with introducing reforms but to focus on their successful implementation. According to him, with the prevailing difficulty in accessing loans from banks, many questions are begging for answers.

"The CBN produced a long list of bank debtors. Have they paid? What is the update on banks' debt profile? Are our banks giving out loans to the right people? There are stipulations, for instance, of how much a bank can give to a small business, is this being complied with? We've had credit officers in some banks, who said they could not do their jobs appropriately because their hands are tied because of their bosses' personal interests? How can this be addressed? These are some of the questions begging for answers. We need transparency in our banking system."

Deru insisted that banks were hiding under the guise of confidentiality to perpetrate questionable activities. "For instance, the Bank of Industry said it would not tell us the beneficiaries of the textile funds. Yet, we will like to know those who benefited from the funds, just like former Minister of Finance, Mrs. Ngozi Okonjo-Iweala, once gave a list of funds allocated to local councils. When you know who gets what fund, you are able to monitor their spending and ask necessary questions. But when banks claim confidentiality, it's difficult to know whether businesses are satisfied because you don't know who is getting financial assistance"

He continued: "You can see what the CBN audit has revealed: that there were atrocities in banks and that sectoral assistance to manufacturers and other businesses as stipulated by regulation were largely not followed. This reinforces my demand for transparency in our banking operations."

But the Managing Director of Ayoola Food Limited, a Lagos-based firm, Mr. Segun Olaye, said the reform in the banking sector does not necessarily imply that the sector operators should find it very difficult to access funds from banks if the banks were doing the right thing before.

He said the banks were giving loans largely to their cronies rather than to genuine operators. Which made the loans turn out to be bad debts. The way forward, Olaye added, is for banks to grant loans to genuine applicants with adherence to due process.

While admitting that, generally, the global economic crisis had reduced banks' funding ability, he however insisted that banks could not afford not to support businesses. According to him: "Even overseas, banks are not giving out loans as much as they previously did because of the global crisis. But, our problem here is that our banks gave out most of their funds to cronies, to whom they lost much of their funds. But overseas, they experience minimal risk because loans are given based on collateral. So, our banks must now be very sure of applicants' collateral before giving out loans. They can't stop giving out loans. They must continue to give out loans, but after doing proper checks. If they refuse to give loans as some are doing now, businesses will crumble and the economy will be seriously affected."

Corroborating Olaye, LCCI's Director-General, Mr. Musa Yusuf, noted that banks had become more risk averse as a fall-out of the losses incurred from their bad-debt profile as revealed by the banks reform.

Yet, he said banks must still take some risks and give out loans because when they choose to be sure that there is absolutely no risk before they give out loans, they are no longer in business, because business itself is a risk.

He added: "The truth is that our banks are becoming too sensitive to risk taking. They are becoming more risk averse. They have taken credit management to its extreme, yet risk asking is part of business. There is no doubt however that they also have liquidity challenge. So, the CBN should also shore up their liquidity to enable them support business the more."

(Source:Guardian)