LDR: Tier-1 banks struggle to meet CBN’s deadline - PUNCH
•As defaulters risk additional cash reserve
BY Kayode Adebowole
Leading Deposit Money Banks are in the final push to meet the Central Bank of Nigeria’s 60 per cent Loan to Deposit Ratio by September 30, our correspondent has learnt.
In a bid to drive lending to the real sector, the CBN directed all DMBs to maintain a minimum of 60 per cent LDR by the end of September.
The circular signed by the Director of Banking Supervision, CBN, Mr Ahmad Abdullahi, said DMBs’ “failure to meet the minimum LDR by the specified date shall result in a levy of additional Cash Reserve Requirement equal to 50 per cent of the lending shortfall of the target LDR.”
With the exception of Access Bank Plc with 65.6 per cent LDR as of half year ended June 30, other tier-1 banks had yet to meet the required ratio specified by the apex bank requirement.
GTBank reported 49.94 per cent for the parent company as of June 30, adding that it was considering credit growth to surpass the regulatory target of 60 per cent.
The bank said, “As at H1 2019, the bank closed with an LDR of 57.9 per cent which represents the ratio of the bank’s gross loans of N1.149tn to customers’ deposits of N1.98tn.
“The ratio of 57.9 per cent has not taken into consideration the 1.5 multiple for small and medium enterprises, retail, mortgage and consumer lending.
“We wish to state that the bank has already commenced credit growth and will ensure that our LDR is close to or surpass the regulatory target of 60 per cent through continued loan growth to identified quality names,” the bank said.
The United Bank for Africa Plc reported 48.05 per cent LDR in H1 2019 while Zenith Bank Plc reported 51.2 per cent.
In addition, FBN Holdings Plc reported 52.6 per cent LDR as of June 30.
A global credit rating agency, Fitch Ratings, explained that with the exception of Access Bank, other tier-1 banks operating in the country had LDR below or close to 60 per cent and would be among the most affected by the new requirement.
The report by Fitch Rating said the CBN move would bring a credit-negative for the banking sector.
It said, “We believe it will push some banks to significantly increase lending to riskier borrowers, potentially with looser underwriting or under-pricing of risk.
“Due to the new LDR requirement, we have raised our 2019 loan growth forecast to an average of 10 per cent for Fitch-rated banks, compared with one per cent growth in 2018.”
The report added, “Achieving the new LDR requirement in such a short timescale will be very difficult for some banks given their lending levels, particularly if customer deposits continue to grow at present rates.”
Further findings revealed that most tier-II banks maintained stronger LDR as of the period under review.