By NBF News

The Central Bank of Nigeria (CBN) has said that what can save the country from the current high interest rate regime is a more robust capital market.

CBN Deputy Governor Operation Tunde Lemo, made this known when the members of the House of Representatives Committee on Banking and Currency paid an oversight visit to the bank, yesterday.

Lemo who represented Governor Sanusi Lamido Sanusi disclosed that robust capital market would enable banks to raise long term corporate bonds at fixed income and this will allow them to structure longer term loans at lower and fixed interest rates.

Lemo who was addressing the issue of floating interest rates raised by members of the committee, explained that banks charge floating interest rate because the rates have to be adjusted from time to time in line with the movement in the Monetary Policy Rate.

'What can save us is a more robust capital market. People think that the capital market is only for raising equities. It is also for fixed income securities and corporate bonds and so on. When … the capital market is very robust, … banks can approve the market and get long term funding which they then tie to their lending books so that once they mobilise liabilities that are fixed in tenor they can translate that to their loan books and be able to do five-year term loan and interest rate is fixed.'

'In the early 80s, banks like IMB and co were structuring deals that way because they were also able to generate long term fixed income liabilities,' he said.

Lemo stressed that what the banks cannot afford to do is mismatch to their liabilities. 'To the extent that you and I put money in the bank for the short term, then if they lend money on a fixed rate and the interest rate moves against them they have negative carry and that is even more deadly for the banking system.

'So the solution is to deepen the money and financial markets such that when the banks have such long term liabilities as part of their balance sheets, they can then begin to structure deals that way.'