Few banks scale hurdle as CBN’s 60% LDR mandate expires

As the deadline for the Central Bank of Nigeria’s (CBN’s) instruction for banks to maintain a loan to deposit ratio (LDR) of 60 per cent by September 30, 2019 lapses September 30, a number of Deposit Money Banks (DMBs) have managed to increase their loan books to escape the regulator’s hammer.

Although all the figures for the third quarter is not yet available, an analysis of the audited financial statements of 13 DMBs listed on the Nigerian Stock Exchange showed that seven of them had a loan-to-deposit ratio of over 60 per cent as of June 2019.

In addition to this, most lenders deliberately designed products aimed at increasing their loan books. For instance, in a bid to provide support for Medium and Small-Scale businesses (MSMEs) in Nigeria, Sterling Bank in the middle of September set aside a sum of N50 billion in loans to fund a pool of businesses in need of financial assistance.

However, while bank loans to customers have improved significantly, not all banks have met the Central Bank’s loan-to-deposit ratio. Basically, deposit money banks, whose loan-to-deposit ratios are below the new target, intensified effort to get more borrowers before the deadline.

Reports show that loans and advances to  customers of the  thirteen (13) Nigerian banks listed on the Nigerian Stock Exchange (NSE) rose to N17.7 trillion as of June 2019, from N16.15 trillion in December 2018. This suggests the 13 listed banks increased total loans and advances by N1.5 trillion between January and June 2019.

A closer look into the banks’ financials shows that while total loans and advances hit N17.7 trillion, banks’ deposits as of June 2019 stood at N28.3 trillion. This implies the 13 listed banks all together have a 62 per cent loan-to-deposit ratio.

However, the Monetary Policy Committee (MPC) noted the increased supply of micro credit to key Micro Small and Medium Enterprises (MSMEs) and effort through the Nigeria Incentive-Based Risk Sharing System for Agricultural Lending (NIRSAL) Microfinance Bank to extend the reach of its credit facilities across the country, but, however, observed that the growth in credit to the private sector remained significantly low, relative to the absorptive capacity of the economy.

A further breakdown showed that FBN Holdings Plc expanded its loan book by N59.42billion in the first half of the year as loans and advances to customers rose to N1.74trillion as of June 2019. With customer deposits of N3.58trillion, the bank’s loan-to-deposit ratio stood at 48.6 per cent.

Guaranty Trust Bank Plc increased credit to customers by N13.85billion to N1.27trillion June. With customer deposits of N2.42billion LDR stood at 52.5 per cent.

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