Deposit money banks, whose loan-to-deposit ratios are below the new target stipulated by the Central Bank of Nigeria, are intensifying efforts to lure more borrowers before the September 30 deadline.
The CBN, in a circular dated July 3, 2019, mandated all deposit money banks to maintain a minimum loan-to-deposit ratio of 60 per cent by September 30, 2019 in a bid to improve lending to the real sector of the nation’s economy. It said failure to meet the minimum LDR would result in a levy of additional cash reserve requirement equal to 50 per cent of the lending shortfall of the target LDR.
The CRR is the share of a bank’s total customer deposit that must be be kept with the CBN in the form of liquid cash. It is currently at 22.5 per cent. “All the banks are working towards full compliance of the CBN pronouncement,” the Chief Executive Officer, First Bank of Nigeria Limited, Dr Adesola Adeduntan, said on Tuesday on the sidelines of a press briefing ahead of the Chartered Institute of Bankers of Nigeria’s forthcoming conference. An analysis of the audited financial statements of the 13 DMBs listed on the Nigerian Stock Exchange showed that nine of them boosted their loan books in the first half of the year but only seven had a loan-to-deposit ratio of over 60 per cent as of June 2019.
FBN Holdings Plc expanded its loan book by N59.42bn in the first half of the year as loans and advances to customers rose to N1.74tn as of June 2019. With customer deposits of N3.58tn, the bank’s loan-to-deposit ratio stood at 48.6 per cent. Guaranty Trust Bank Plc increased its credit to customers by N13.85bn to N1.27tn as of June. With customer deposits of N2.42bn, its LDR stood at 52.5 per cent.
Unity Bank Plc increased its loans and advances to customers by N26.96bn to N70.62bn while its customer deposits rose slightly by 0.1 per cent to N242.22bn. Its LDR stood at 29.16 per cent as of June. Zenith Bank Plc reduced its loan book by N21.28bn to N1.80tn, while deposits from customers grew to N3.81tn in June from N3.69tn in December 2018. Its LDR stood at 47.24 per cent.
United Bank for Africa Plc also cut its lending to customers by N27.78bn to N1.69tn as of June. With customer deposits of N3.51tn, its LDR stood at 48.15 per cent. Ecobank Transnational Incorporated, the parent company of Ecobank Nigeria, reduced its loans and advances by N188bn to N3.15tn. With customer deposits of N5.83tn, its LDR stood at 54.03 per cent.
Adeduntan, who is the Chairman, Consultative Committee of the CIBN’s 12th Annual Banking and Finance Conference, stressed the need for banks to continue to lend in a safe and sound manner. He said, “When you look at our GDP growth and our population growth, it is crystal clear that we need to orchestrate growth that is much higher than two per cent, and you can’t grow the economy when banks are not lending. By getting banks to lend more and, expectedly, because of the multiplier effect of the lending, you expect higher growth in the economy.
“In order to make it easy for the banks to lend, the central bank is also taking a number of steps to ensure that we change the credit culture of our people. Without credit growing, economic growth will be a mirage.” Many members of the CBN’s Monetary Policy Committee, in their personal statements at their last meeting, highlighted the need for increased credit in the economy.
The CBN Governor, Mr Godwin Emefiele, said the observed growth in private sector credit followed the bank’s various interventions, although underlying risk perception of the banking sector remained largely unfavourable. He noted that banks’ non-performing loans declined to 9.36 per cent in June 2019 from 11.68 per cent in December 2018 and 14.86 per cent in December 2017.
“Thus, the CBN will continue with its development finance initiatives to de-risk the sector and channel increased amount of lending to key high-impact private sector activities,” the governor said. He said the new policy to raise loan-to-deposit ratio from the extant 57 per cent to 60 per cent by end-September 2019 was with “a view to ensuring that banks undertake their fundamental intermediation role, for which they were licensed.”
“Besides, we will continue to use all means available to us to engage and encourage banks to increase credit to the productive private sector,” Emefiele added. According to him, the LDR of Nigeria’s banking industry at 57 per cent is low when compared to countries such as Brazil (70 per cent), the United States (75 per cent), China (71.2 per cent), India (75 per cent), South Africa (91 per cent) Kenya (76 per cent), and Japan (70 per cent). Another member, Prof. Adeola Adenikinju, said the banking system stability report presented by staff of the CBN showed positive developments in the financial system.
He said the financial system indicators were in the right direction in the period under review. Adenikinju said, “The capital adequacy ratio and the non-performing loans ratios are trending in the right direction. For the first time since December 2015, the NPLs in June 2019 were in single digit though higher than the maximum of five per cent required under the prudential guideline. “Other indicators like liquidity ratio, return on equity and return on assets continue to signal encouraging development. Efforts should be made to sustain the current trend.”
He described the current measures by the CBN to redirect credit to the real sector of the economy as commendable. He said this should be complemented by sustained efforts by the monetary and fiscal authorities to support the environment in order to make it easier for banks to lend to otherwise risky sectors, encourage markets for the NPLs, and to put in place laws and regulations to facilitate resolutions of debt cases.
“Furthermore, credit access should be broadened to cover more sectors of the economy, especially those that will facilitate employment generation and promote economic diversification,” he added. The Deputy Director, Financial System Stability Directorate, Mrs Aishah Ahmad, noted that banks’ NPL ratios turned single digit at 9.36 per cent in June 2019 for the first time in 40 months. “However, several months of low credit to the private sector amidst burgeoning treasury securities activity prompted the CBN’s policy statement on July 3, mandating DMBs to build up their minimum loan-to-deposit ratio to 60 per cent over a three-month period, with additional incentives (150 per cent weighting) for new SMEs, retail, mortgage and consumer loans.” Punch
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