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Banking sector consumer credit up 17% over LDR implementation

The continued implementation of the Loan to Deposit Ratio (LDR) policy led to a significant rise in consumer credit in the first half of 2020, according to the Central Bank of Nigeria (CBN).

At N1.13 trillion, consumer credit rose by 17.0 per cent at the end of June 2020, compared with 10.3 per cent at the end of the corresponding period of 2019, a persistent trend since June 2018. At that level, consumer loans constituted 3.9 per cent of total credit to other sectors, in the first half of 2020, compared with 3.3 per cent at the end of the corresponding half of 2019.

The CBN’S consumer credit survey showed that lenders reported an increase in the availability of secured credit to households in the third quarter (Q3) 2020 relative to the previous quarter. The Changing liquidity positions and increased market share objectives were major factors responsible for the increase.

Availability of secured credit is expected to increase in the fourth quarter (Q4) 2020 as well, with increased market share objectives and favorable economic outlook as the likely contributory factors.

The financial sector remained stable in the first half of 2020 as the key financial soundness indicators remained resilience. This was despite the continued lull in global financial markets, adverse shocks to global capital flows and falling oil prices due to the impact of the COVID19 pandemic.

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“Our banking system remained strong, as key indicators reflected improvements across several areas,” said Godwin Emefiele, governor of the CBN.

The CBN’S half year report showed that the industry threshold, however, remained at 15.0 per cent for banks with international authorisation and 10.0 per cent for banks with either national or regional authorisation.

However, the industry liquidity ratio decreased to 65.1 per cent at the end of the first half of 2020, from 73.0 per cent at end-june 2019, reflecting the decrease in the stock of liquid assets held by banks.

With the exception of four commercial banks and one merchant bank, others met the minimum regulatory liquidity ratios of: 30.0 per cent, 20.0 per cent and 10.0 per cent for commercial banks, merchant banks and noninterest banks, respectively in the first half of 2020.

“Our intervention efforts in the agriculture and manufacturing sectors continued to support employment generating activities and improved local production of goods that can be produced in Nigeria,” he said.

Due to sustained recoveries, write-offs and disposals of pledged collaterals, the asset quality of the banking industry, measured by the ratio of non-performing loans to total loans (NPL ratio), improved to 6.4 per cent at the end of June 2020, compared with 9.4 per cent at end-june 2019.

At that level, the ratio remained slightly above the regulatory threshold of 5.0 per cent. Loan loss provision coverage stood at 93.7 per cent at the end of June 2020, compared with 79.8 per cent in the corresponding period of 2019.

The Joint (CBN/NDIC) Risk Asset Assessment (Target) examination of 26 banks in the review period showed that banks’ earnings, compared with the corresponding period of 2019, improved as a result of higher volume of credit transactions, enhanced asset quality and high quality of loans that led to reduction in impairment charges, among others.

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