The 60% Loan to Deposit Ratio (LDR) threshold announced by the Central Bank of Nigeria (CBN) saw banks creating as much N860bn credit to the economy in just eleven weeks to avoid being penalized.
But the lenders say their push were not just the proposed punitive measures, but that they are now committed to helping the fragile economy through lending and are encouraged by the CBN incentives to play their financial intermediation roles.
The lenders said their comfort in boosting consumer lending and the economy comes from some critical reforms that the CBN has implemented to eliminate fraud in the banking system especially the BVN.
The CBN had in July asked banks to lend a minimum of 60 percent of their customers’ deposits, failure which would arrant a levy of additional Cash Reserve Requirement equal to 50 percent of the lending shortfall of the target LDR by October 1.
At the end of the September deadline, some N860bn – mostly retail credit was advanced to the economy just in 11 weeks, while a dozen lenders which failed to meet the threshold were debited some N499.1bnby the apex bank.
“On the Loan to Deposit Ratio, the CBN can rest assured that they have the commitment of the banks to support the initiative,”;Ebenezer Onyeagwu, Group Managing Director, Zenith Bank assured, speaking on the outcome of the bankers committee meeting Thursday in Abuja.
He mentioned some incentives created in the market place to enable the lenders create credit culture in the economy which was lacking before now.
“There is a lot more incentives for us to create loan. One of them is using the capability of the BVN, which now makes it possible for a a delinquent borrower be traced within the system,” he stated.
“This is interesting because the biggest challenge we have in creating loan in character, but with what we have now, the high level of defaults cannot happen. That is an incentive.
“Also by reason of what the CBN has done, there is a lot more intervention schemes available now, like the creative sector, the AGMEIS, the differentiated CRR, these are new incentives that have come up to enable and encourage banks to create more loans.
“Again this is our country and the potential here remain very enormous. So it’s about us harnessing our potential together for the real sector, retails and everybody together, we can now create a more lending and credit culture.
Meanwhile, he N499.1bn which the CBN debited some banks for failing to meet its 60 percent minimum Loan to Deposit Ratio (LDR) is not a fine but would be refunded whenever the lenders meet up with the threshold, Ahmad Abdullahi, CBN Director, Banking Supervision Department also told reporters.
“If for instance your LDR is 57 percent, 50 percent of the 3 percent will be taken from your bank and kept until when you improve on your lending,” Abdullahi explained.
The Director also explained that “this an era when there is recognition that the real sector has to be supported, that it cannot be business as usual.
“We are going to diversify the economy, we are going to provide credit to the real sectors to ensure sustainable growth abd development of the economy,” he stated noting that the banks credit system has largely been driven by oil and gas which is not sustainable.
“The real sector of agriculture, manufacturing and so on, for some time has suffered from stunted growth and there is this realization, among the banks that that this is the way to go, hence the endorsement of the CBN policy regarding the real sector.”
He however Discountenanced that notion that the new LDR policy could lead to a further build up in the Non-Performing Loans.
“There is a mechanism in place that as part of the documentation by banks, there will be a clause that an obligor will sign that if for any reason the loan that is taken goes bad, then the bank has the right to set off against any amount that the obligor will have in the system.
“That is one ofg the major measures that is being taken to make we don’t have built up NPR.
Onyeagwu, Group Managing Director, Zenith Bank who corroborated Abdullahi explained hat the CBN never stated that those debits were fines, but that any bank which fails to meet the threshold at deadline would have funds debited from it and set aside and added to its Cash Reserve Ratio (CRR).
“So what you have is neither a fine nor a levy, but it is just a shortfall based on the parameters that the CBN has set.
He explained that policy is a continuous process which whole essence is to ensure that lending to the economy is not just a one off growth, but a continued process of creating an enabling credit in the system in the economy.
According to Akin Dawodu, MD Citibank Nigeria, “The changes in the environment have improved the credit risk management of the bank and other industry and that would help protect banks balance sheets even when the LDR increases.
“The BVN is a very fundamental reform that has a lot ramifications for banking primarily,” he said.
“So with it, the issue of fraud or identity theft which has been a huge challenge to retail banking is now quite difficult of impossible.
“The institution risk management risk instruments is now much strengthened and this would help manage the likelihood of non-performing loans in the future,” he added.
The press meeting also had CBN Director, Corporate Communications, Mobola Faloye, ED Risk, Standard Chartered Bank as well as Demola Sogunle, CEO Stanbic IBTC in attendance.
Onyinye Nwachukwu, Abuja
