By Our Reporter
Wednesday, September 9, 2020.
Deposits are soaring in Nigeria, with people showing a preference to save rather than invest in productive activities, according to the central bank.
“Over the past several months, we have noticed an increasingly large gap between total deposits in the banking system and total credit to the economy,” Central Bank of Nigeria spokesman Isaac Okorafor said in a statement pushing back against criticism of the regulator’s decision to reduce interest rates on savings deposits. “Many rich cooperates have simply been content with saving their cash balances and collecting huge interest payments, rather than expanding their investment, which should
lead to hiring more people and producing more goods.”
The CBN with effect from September 1 lowered the base of interest rate on savings deposits to 10 percent of the Monetary Policy Rate of 12.5 percent, effectively slashing the minimum rate to 1.5 percent, at a time inflation is at 12.8 percent.
As at January this year, total deposits in the financial system stood at 25 trillion naira compared with loans of 17 trillion naira. Ideally, theyshould be in equilibrium, the CBN said.
“In other to forestall a continuation of this trend, the CBN had to act to discourage these practices for the good of the economy,” Okorafor said in the statement.
The fact that more people are inclined to save than invest is a sign of an economy in deep malaise, which commands little investor confidence, some analysts said.
“People are concerned that money may not return if it goes out to investments,” said Kehinde Pedro, a Lagos-based fund manager. “So they’re seeking safe havens to keep their money while earning something.”
The impact of the coronavirus pandemic has been to induce a wait-and-see attitude in people, and many are avoiding risks as a precaution. In Nigeria the situation has been made worse by increased insecurity underlined by insurgency in the northeast, clashes over grazing rights across the country, widespread banditry and kidnapping at a time of policy uncertainty with Nigeria prone and vulnerable from the collapse of oil prices, said Pedro.