The objective of growing the economy through marking credit available to the real sector of the economy seems to be responding positively as the banking sector credit condition is improving, leading to gradual reduction in interest rate.
The banking industry gross credit stood at N1.16 trillion between May and October 2019, supported by the Central Bank policy measures.
Interestingly, deposit money banks that have over the years preferred to invest in government securities to lending to the real sector are now aggressively pushing credit to the economy through various initiatives and product designs in order to meet the December 31, 2019 deadline for the 65 percent Loan to Deposit Ratio (LDR).
The Central Bank of Nigeria (CBN) had in June announced a new policy measure, which require banks to maintain a minimum 60 percent loan to deposit ratio. This, the regulator later raised to 65 percent and set December 2019 as deadline for compliance by banks.
Loan-deposit ratio is a ratio, represented in percentage, between the banks total loans and total deposits.
Operators in the real sector have always complained about shortage of funds to run their operations, as such, this policy is meant to tackle loan defaults while increasing lending to the sector.
In July 2019, the CBN wielded the big stick on 12 banks for LDR default to demonstrate its determination to jumpstart the economy.
Consequently, the CBN deducted N500 billion from the accounts of 12 banks for failing to meet the target to provide credit to their customers.
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The affected banks and the money deducted include Zenith Bank N135.629 billion; Citibank N100.743 billion; United Bank for Africa – N99.676 billion; Firstbank –N74.669 billion; Standard Chartered Bank – N30.027 billion and Gtbank – N25.148 billion and Fbnquest – N2.697 billion.
ALSO,FCMB’S was debited N14.371 billion; Jaiz Bank – N7.525; Keystone Bank – N4.163 billion; Rand – N2.823 billion, and Suntrust – N1.703 billion.
However, most of the banks fined by the Central Bank were refunded after meeting the 60 percent Loan-to-deposit requirement.
The banks in the country are now able to recover delinquent loans from customers’ accounts in other banks, even as the measures now placed Nigerian banks in a much better position towards supporting a stronger economic recovery.
Are the banks going to fully comply to this directive at the end of the deadlizne given by the Apex bank?
Ayodele Akinwunmi, relationship manager, corporate banking, FSDH Merchant Bank Limited said banks have increased lending since the order was given.
Looking at their position as at the end of third quarter (Q3) 2019 and following the increase to 65 percent, he said it is possible that a few banks may not be able to meet up the 65 percent loan to deposit ratio.
“We have also noticed a situation in which many large corporate borrowers are paying down on their loans with banks and they are taking advantage of the low yields in the fixed income market to issue Commercial Papers,” Akinwunmi said. The Monetary Policy Committee (MPC) noted in its last meeting in November 2019 that the CBN policy measures have assisted in boosting credit to the agricultural and manufacturing sectors, hence, the positive outcome on the Gross Domestic a Product (GDP).
The MPC is hopeful that the LDR initiative must be sustained as interest rates being paid by borrowers have so far dropped by up to 400 basis points between June and October 2019. These have happened with corresponding decline in the industry’s Non-performing Loans (NPLS) to 6.5 per cent at the end of October 2019.
Ayodeji Ebo, managing director, Afrinvest Securities Limited, sees more interest in banks trying to turn out loans to customers through various initiatives and products.
Some banks have unveiled to the public their loan portfolio plans, targeting key sectors of the economy while some others are sending SMS to their customers for access to quick cash up to N5 million.
For instance, one of the messages from a tire one bank reads: “dear customer, need cash urgently? Dial ….. to get Quickcredit of up to N5 million instantly. Repay, at 1.75 percent monthly. No collateral. No hidden charges”.
Godwin Emefiele, governor of the CBN had at the Monetary Policy Committee meeting in July 2019 explained that the core role required of the banks is to act as financial intermediaries to provide credit to the private sectors of the economy.
Another SMS to customers from another tier one bank reads: “Congratulations! You have prequalified for Paday loan. Dial …. Now for instant cash. Terms and Condition (T&CS) apply. Enquiries? Call ….”.
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“We give them incentives that when they lend to the SMES, private sectors they will be granted certain dispensations to make them happy while failure to comply will result into taking 50 percent of the un-lent portion of their loans into the CRR,” Emefiele said.
Tier-2 banks recorded average Loan to Deposit Ratio (LDR) of 68.3 percent in the first half of 2019 with Fidelity Bank Plc leading with a record 95.7 percent LDR.
This was followed by FCMB 80.5 percent LDR, Sterling Bank plc 78.4 percent, Stanbic IBTC 69.2 percent, and Wema Bank Plc 65.1 percent.
Union Bank Plc and Unity Bank Plc recorded 59.2 percent and 29.7 percent respectively, which is below the 65 percent minimum ratio pegged by the CBN.
The banking sector report by Afrinvest West Africa, revealed that tier-1 banks recorded 58.0 percent average LDR in the first half of the year with Access Bank leading with 68.1 percent LDR.
This is followed by Zenith Bank 62.7 percent, Ecobank 58.0 percent, GTB 57.9 percent, FBNHOLDing Company 52.6 percent, and United Bank for Africa (UBA) 48.5 percent.
Non-performing Loans for the tier-2 banks averaged 5.5 percent in the first half of 2019 from average of 6.2 percent in full year 2018.
NPLS of tier-1 banks stood at an average of 8.9 percent in the first half of 2019 from 10.1 percent in the full year 2018.
Industry gross earnings projected to recover strongly in 2019 to N4.9 trillion from N4.1 trillion in 2018. The industry turnover stood at N2.4 trillion in the first half of the year.
The banking sector total assets is expected to hit N44.2 trillion by the end of 2019, which is 7.8 percent compared with N41.0 trillion in 2018.
At the end of the first half of 2019, the sector recorded N43.7 trillion in total asset, according the banking sector report by Afrinvest West Africa which was launched on Monday.
“Total asset remain strong,” said Ike Chioke, group managing director, while presenting the report with the theme, ‘Beyond the Precipice…pulling Back from the Brink’, in Lagos.
The industry’s total deposits is expected to reach N29.1 trillion by the end of 2019, growing at 25.4 percent as against N23.2 trillion in 2018. Total deposits stood at N25.6 trillion in the first half of 2019.
The report showed that the total loan of the banking sector stood at N15.7 trillion in the first half of 2019 and is expected to hit N16.1 trillion by the end of the year.
