For the second time in six months, Nigerian banks are bracing up for fresh sanctions from the Central Bank of Nigeria for breach of the loan to deposit ratio which was raised to 65 percent.
The new directive came just after the closure of September 30th deadline set by the regulator for banks to meet the 60 per cent loan-to-deposit-ratio from the previous 58.5%.
Up to 12 banks defaulted on meeting up with the 60% deadline at end of September, warranting the CBN to sanction the banks with fines totaling N499.1 billion after a combined loan shortfall of nearly N1 trillion.
The affected banks were Zenith Bank (N135,629,337,625), United Bank for Africa (N99,676,181,916), Citibank (N100,743,055, 321); First Bank of Nigeria (N74,668,880,480); Standard Chartered Bank (N30,027,137,984), Guaranty Trust Bank (N25,147,933,628) and First City Monument Bank (FCMB), (N14,371,064, 742).
Others include Jaiz Bank (N7,525, 165,552); Keystone Bank (N4,162, 938, 879); Rand Merchant Bank (N2,823,177,399); FBNQuest Merchant Bank (N2,697,456,144) and SunTrust Bank (N1,703,205,427).
Analysts say they expect to see increased growth in loan exposure from the big banks in the fourth quarter of 2019 as many of the banks significantly reduced their prime lending rate which helped make loans cheaper and more affordable for businesses. However, not everyone is optimistic that the banks created enough loans to avoid another round of fresh sanctions from the apex regulators.
“It will be very difficult for most banks that defaulted the first time to suddenly meet up with a higher hurdle, said one banker in one of the Tier 2 banks who pleaded anonymity. “I expect the combined fines to be somewhere between N200 billion and N300 billion this time, which is smaller than we saw the last time, but things can get even worse for banks if CBN increase the loan to deposit ratio again. I am not sure the books of the banks will still look healthy in 2020 with all these rush to book loans,” he added.
The CBN Director, Banking Supervision Department, Mr. Hassan Bello gave the hint while speaking at the 2019 workshop for Finance Correspondents and Business Editors hinted that the CBN is considering raising the LDR once next year. “We are thinking of doing 70 per cent by the end of next year. Within the period that we have increased the LDR, industry lending has increased by over N1.1tn,” he told the audience.
CBN has been encouraged by the performance of loan creation since they began raising LDR which is making the apex regulator confident that by raising the bar higher and higher, banks will forced to do what they are reluctant to do which is to create more loans in a low growth environment with high risk free treasury bill returns.
IFEANYI JOHN
