Banks race to improve deposits as CBN’s 60% LDR directive elapses in 2 weeks

In the wake of an approaching deadline towards meeting the Central Bank of Nigeria’s (CBN) directive on loans, Nigerian banks have intensified efforts to improve funds in current and savings account of their customers.

According to Kunle Ezun, a financial analyst at Ecobank Plc, the reason for the drive to improved deposits is due to the CBN’s policy.

The CBN had directed that by September 30, 2019 banks will be required to maintain a minimum loan-to-deposit ratio (LDR) of 60 percent.

Ezun explained that since the policy was announced, banks have been aggressive in shoring up their Current and Savings Accounts (CASA).

Ezun said CASAs are the life wire of the banks. “In some banks today, they have even announced that staff that can bring in enough deposits from CASA would be rewarded. So the idea is to grow your deposits so that you can have more funds to be deployed as loans,” he said.

Ezun said the initiative is a lovely idea that is geared towards driving economic growth.

“By my calculation, if the banks that are below 60 percent LDR decide to grant loan, over N1 trillion would be channelled into the system; you can imagine what would happen if we have over N1 trillion in the system.

“That is why we can see a lot of the big banks doing advertisements around their consumer lending products.

“They all need cheap loans to do all of that. I believe that to leapfrog economic growth, banks need to lend to SMEs and provide loans for consumer lending. That is how we can grow the economy and that is why I support the CBN policy,” he added.

Investigations shows the total industry LDR stood at 57.64 percent as at July 2019, which is less than three percent below the target, according to the latest CBN monthly economic report.

While some banks have exceeded the 60 percent target, some are slightly below it.

Recently released half-year results of banks showed that most of them recorded improved customer deposits.

For instance, GTBank’s customer deposits increased by 6.3 percent to N2.418 trillion, from N2.274 trillion as of December 2018; Access Bank’s customer deposits increased 63 percent to N4.18 trillion in June 2019, from N2.57 trillion in December 2018 and the United Bank for Africa (UBA) Plc recorded 4.8 percent growth in customer deposits, to N3.510 trillion as at June 2019, from the N3.349 trillion it was a year ago.

Analysing the impact of the directive, Abiodun Sanusi, director and group head, investment banking at Coronation Merchant Bank Limited, said the overall impact of the LDR policy was that banks would be willing to give out more loans.

“So, overall there is a huge positive gain in this 60 percent loan-to-deposit ratio, which means more loans would be given at longer maturity tenor,” he added.

Segun Agbaje, the managing director/chief executive officer, Guaranty Trust Bank Plc, in a recent interview on television, said with the industry LDR already at 57 percent, banks only have to struggle to achieve three percent to get to the prescribed limit.

“ To boost real sector, you have to lend. There is no way you can boost the real sector without lending. So, this is just to give the banks comfort to be able to grow their loan books and not worry too much about the non-performing loans that happened as a result of that growth,” Agbaje added.

The CBN had said the new LDR would be subject to quarterly review.

“To encourage SMEs, retail, mortgage and consumer lending, these sectors shall be assigned a weight of 150 percent in computing the LDR for this purpose.

The CBN also said it will provide a framework for classification of enterprises/businesses that fall under these categories.

“Failure to meet the above minimum LDR by the specified date shall result in a levy of additional Cash Reserve Requirement equal to 50 percent of the lending shortfall of the target LDR,” the regulator had added.

As part of the measures to encourage lending to the real sector, the CBN had also stated that it would no longer remunerate daily bank deposit in excess of N2 billion placed at its Standing Deposit Facility (SDF), just as it would restrict banks’ investment in treasury bills.