The Central Bank of Nigeria (CBN) wields the big stick again by debiting 22 banks a total amount worth N462.7 billion for breach of its lending policy.
The CBN had announced a new policy measure in June 2019, which requires Deposit Money Banks (DMBs) to maintain a minimum 60% Loan to Deposit Ratio (LDR)
LDR is a ratio of a bank deposit that is availed as loans to its customers and it is represented in percentage.
The objective of the policy according to the Apex bank is to make funding available to the real sector of the economy with the aim of boosting production and ultimately creating jobs.
Part of the new lending policy, however, is that banks that we’re unable to meet up with the LDR would increase it’s Cash Reserve Ratio (CRR) by 50% of the shortfall in the LDR target
CRR is the percentage of bank customers’ deposits, which is kept with CBN at a zero interest rate as a reserve.
The CBN at the first meeting of the Monetary Policy Committee (MPC) in January increased the CRR to 27.5 percent from 22.5 percent. The increase then was as a result of concerns on the excess liquidity in the banking sector.
According to the CBN governor, Godwin Emefiele: “We gave them incentives that when they lend to the Small and Medium Enterprises (SMES), and 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,”
CBN later increased the LDR to 65% with the threat to increase it to 70% in December 2019 (This was never announced). But, the regulator gave a deadline of December 2019 for compliance to the new 65% LDR by DMBs.
The affected banks include
- Access – N75bn
- Zenith – N60b
- GTB – N55bn
- Stanbic – N50bn
- UBA – N45bn
- Standard Chartered Bank – N40bn
- Ecobank – N23bn
- FCMB – N20bn
- Unity – N15bn
- Polaris – N14bn
- FBN Quest – N12bn
- FBN – N10bn
- CITI – N10bn
- Providus – N8bn
- Union – N7bn
- Wema – N7bn
- Coronation – N5bn
- Fidelity – N4bn
- Nova – N4bn
- Titans – N2.7bn
- Suntrust – N2bn
- Globus – N1bn
Keystone, Heritage, and FSDH were the only 3 banks spared by the Apex Bank.
Some analyst has however opined that continuous deduction and increase in CRR of banks will put pressure on the Net Interest Margin as these funds earn zero interest with the CBN.