Zenith Bank GMD, Onyeagwu lists reasons for high interest on loans

The Group Managing Director of Zenith Bank, Ebenezer Onyeagwu, has said that the operational costs and regulatory costs involved in running a bank usually are part of the reasons why banks in the country charge high-interest loans as they adds to the bottom line at the end of the day.

The Zenith GMD who spoke on Arise TV, stated that it is nearly impossible to issue an interest rate by fiat. He stated that the interest rate will always be determined by market forces, including fiscal deficit, government borrowing and money supply and demand.

He said, “First of all, if you are looking at the interest rate, you have to look at it in terms of the theoretical framework and issues around money supply, demand for money, issues around government borrowing, and the fiscal deficits.

“Interest rates would always be set by the dynamics and realities in the market. In this case, if you are looking at the interest rate in Nigeria, you have to index it to the risk-free rate. The one-year risk-free rate in Nigeria is like 10 percent. So, it will be difficult to have a single-digit rate in Nigeria.”

“Within the year we saw an upward review in fuel price, which accounted for the increase in our fuel cost. Again, when you are looking at the cost of doing business, you also need to look in total, how businesses are being conducted. If I set up a branch today, I would need to provide my infrastructure, I need to provide power, water and in some cases, we even construct the road to provide access to the branch location.

 “So, as a result of the poor state of infrastructure, you see that businesses would now have to contend with providing these resources to get their operations running. So, if we have more available and cheaper utility services and infrastructure to support businesses, of course, the cost would go down.

Also speaking on the cost of doing business in banking, Onyeagwu, said it goes beyond those operational costs. “We also have things like regulatory cost. A bank like Zenith, given our size, the burden of regulatory cost on us is heavy. By regulatory cost here, I am referring to the Nigeria Deposit Insurance Corporation premium and the Asset Management Corporation of Nigeria fee.

“So, because of our size, if you look at the numbers, you will see that these regulatory costs account for a whopping 28 percent of our overhead. So, all of them come together to add to the cost of doing business for us as a banking institution in the country,” Onyeagwu said.

Onyeagwu also highlighted the various ways the Central Bank of Nigeria has intervened in a bid to provide single-digit loans to entrepreneurs in certain sectors. Sectors like cinema, movie, ICT, and fashion designing have been enjoying single-digit loans courtesy of various CBN initiatives.