Incentivized by juicy rates in Nigeria’s fixed income space, the country’s tier-one lenders have remained conservative in disbursing credit to customers evidenced by their lowest loan-to-deposit ratio (LDR) in the first quarter of the last 5-years.
Analysis of the loan-to-deposit ratio of Access Bank, First Bank, United Bank for Africa, Zenith Bank and Guaranty Trust Bank revealed that they loaned 54 percent of total deposits received to customers, despite growing deposits to a 5-year high at N18.7 trillion combined.
Conceptually, loan-to-deposit ratio shows the percentage of total deposits given to customers as loans. In other words, it indicates how much lenders give as loans for every N100 collected from customers as deposits.
Deposits collected from customers are liabilities to the banks, and they are obligated to pay interest on savings and term accounts. To ensure this responsibility is met, banks strive to generate income from those deposits by lending to customers (individuals, corporates & government) or putting them in investment securities.
There is a consensus among financial analysts that an ideal LDR should hover around 80 – 90 percent. While a higher ratio might mean higher income, banks are wary of loan default and liquidity risk.
A low ratio, on the other hand, is indicative of a bank’s inefficiency in generating income from its deposits. Nigeria banks, wary of the risk inherent in the economy, just emerging from its first recession in 25-years, have been enticed to invest more of those deposits in the fixed-income securities, leaving customers with less credit.
To Fola Abimbola, analyst at FBN Merchant Bank, the slow growth of the economy coupled with election uncertainty in the quarter, played a crucial role in banks’ LDR falling to a record-low.
“Moreover, over the last couple of years, banks have been ramping up deposits, and they have not been growing their loan, as such loan-to-deposit ratio has fallen, and they have been investing more in fixed-income securities” said Abimbola.
First Bank led the pack with LDR of about 63 percent in the review quarter, implying that the lender loaned out N2.7 trillion out of N4.2 trillion total deposits received. This is actually the least compared with 81 percent in Q1 2015, 71 percent in Q1 2016, 73 percent and 71 percent in Q1 2017 and Q1 2018 respectively.
Behind First Bank comes Nigeria’s biggest lender by assets, Access with 59 percent LDR. This means that the lender gave out loan worth N2.7 trillion from N4.7 trillion total deposits received.
Guaranty Trust Bank (GTB) and Zenith Bank’s LDR stood at 51 percent and 50 percent respectively in the review quarter, compared with 59 percent and 52 percent reported a year earlier.
While GTB loaned N1.3 trillion to customers from N2.5 trillion deposits received, Zenith Bank gave out N1.8 trillion to customers as loans from N3.6 trillion total deposits collected.
United Bank for Africa had LDR of 46 percent in the review quarter, which is 9 percent points lower than 55 percent recorded in the previous corresponding period. UBA gave out loans worth N1.7 trillion to customers from N3.7 trillion total deposits collected.
The five banks collectively gave out loans worth N10.2 trillion to customers from N18.7 trillion total deposits received, with LDR averaging 54 percent in the review quarter.
Israel Odubola & Segun Adams
