Lending: Banks race to beat CBN’s deadline

Banks are in a race to beat the September 30 deadline given by Central Bank of Nigeria (CBN) to implement the 60 per cent minimum Loan to Deposit Ratio (LDR) policy.

They are scrambling for credible borrowers, investigations have revealed.

The apex bank had mandated banks to give out 60 per cent of their deposits as loans. The regulator said banks that did not comply with the directive would have their cash reserve ratios (CRR) increased. Cash reserve ratio is the share of customers’ deposits kept with the CBN.

To ensure compliance as the timeline nears, tier-1 banks, lenders with assets greater than or equal to N1 trillion, are luring credible borrowers in tier-2 banks with mouth-watering interest rates.

The industry average lending rate is around 23 to 26 per cent per annum, but premium borrowers still get credit at 16 to 17 percent per annum.

Confirming the development during the presentation of banking sector report in Lagos, Ada Ufomadu, senior analyst, banking & insurance department at Agusto & Co, said Tier-1 banks are now going for big and credible borrowers in Tier-2 banks, offering them reduced lending rates for new loan plan.

FirstBank, Access Bank, Zenith Bank, United Bank for Africa and GTBank fall within the Tier-1 bank category.

According to Ufomadu, the focus of the LDR minimum is to promote consumer and mortgage credit to drive demand.

She said: “Most Tier 2 banks comply with the new LDR minimum requirement, but not all Tier- 1 banks have complied with the CBN policy and short timeline for the policy implementation remains a challenge.”

Ufomadu said the industry LDR stood at 80.1 percent in 2016; 75.1 percent in 2017 and 66.4 percent in 2018 and has continued to trend southwards as lenders cut their credit exposures, focusing on high-yielding government securities- bonds and Treasury Bills.

She said the industry’s total assets stood at N25.49 trillion in 2014; N25.7 trillion in 2015; N28.02 trillion in 20116; N30.82 trillion 2017 and N33.3 trillion 2018. These statistics, she added, should ordinarily provide good opportunity for banks to lend to to the real sector.

Ufomadu said the banks are at present, engaging in ‘cautious growth’ lending on government securities.

According to her: “The top five banks have 57 percent combined industry assets and 59 percent loan book, adding that there is steady decline in industry assets.

“Tier-1 banks lost N1.1trillion to the implementation of the International Financial Reporting Standards 9 (IFRS 9) implementation, which helps lenders to be more stringent in classifying their loans.

“In the last three to four years, banks have not been bullish in lending. Even the CBN regulation cannot change that reality. Banks are also rejecting expensive deposits and going for low interest deposits.”