Nigeria: CBN’s New Lending Policy Puts 7 Banks Under Pressure

A total of seven leading deposit money banks, DMBs, may now be under pressure to beef up their loan portfolio following a recent directive by the Central Bank of Nigeria, CBN, which requires banks to give out 60 percent of their deposits as loans to the real sector.

The banks include, Guaranty Trust Bank, GTB Plc, First Bank of Nigeria, Ecobank Transnational Incorporated, Stanbic IBTC Holdings, Union Bank of Nigeria Plc, United Bank for Africa Plc and Zenith Bank Plc.

Financial analysts said more smaller banks would also be affected, adding that the pressures may force the banks to sidetrack the policy and opt to stay with the penalty for non-compliance.

Impact of limitation of banks’ access to government securities depends on CBN mechanisms – DMO(Opens in a new browser tab)

Penalty for non-compliance

Going by the new policy, these banks would be compelled to shore up their loan position with as much as N1.7 trillion, representing the Loan-to-Deposit, LDR, shortfall recorded by the banks as at the end of first quarter 2019 (Q1’19). This figure would go up if the banks’ deposits continue the uptrend recorded in the Q1’19 reports.

The execution of the policy, on the other hand, may also mean a forcefull lock-up of half of this amount (N844 billion) by CBN should they fail to create the new loans by September 30, 2019.

Financial Vanguard analysis of the Q1’19 financial results of the affected banks showed that they recorded 51.6 percent LDR, representing 8.4 percent shortfall of the LDR target.

Breakdown showed that the banks’ deposit stood at N20.12 trillion as at the period under review, but they disbursed N10.4 trillion loans to the customers. Under the new policy they would be required to disburse N12.1trillion loans.

However, the overflow recorded by the remaining five out of 12 banks covered by this report effectively moderated the huge gap the seven banks recorded, thereby bringing down the cumulative shortfall to N646 billion.

The banks, Fidelity Bank Plc, Access Bank Plc, Sterling Bank Plc, FCMB Group Plc and Wema Bank Plc, which aggressively pursued loan creation, overshot their expected target under the new policy by N1.33 trillion, having given out N5.5 trillion from N7.0 trillion deposits they recorded during the period. The CBN Directive The CBN had penultimate week mandated banks to maintain 60 percent LDR effective September 30, 2019, saying that the measure would ramp up growth in the Nigerian economy through adequate funding […]

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