• Tuesday, May 21, 2024
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Banks’ loan-to-deposit ratio drops in 2012, lowest in four years


Year end financials released by half of Nigeria’s money deposit banks indicate that lending in 2012 went down as against expectations. The top banks that have released their results so far, include FirstBank, Zenith, GTBank, Sterling, ETI, StanbiIBTC, Union and Access. The financials of the banks all show that they lent a smaller portion of their deposits in 2012 compared to 2011, representing a four-year low.

This, according to analysts, may be as a result of the banking

reforms, which have made banks slow down in risk assets creation and focus more on deposit liabilities. The trend has also been attributed to high interest rates which have precluded many from borrowing.

The average loan-to-deposit ratio for the nine major commercial banks which have so far released full year 2012 results, fell to 57.96 percent in the fourth quarter, from 63.18 percent a year earlier.

Lending as a proportion of deposits dropped in eight of the nine banks under review, while remaining flat in only one, an analysis of the data shows.

Zenith Bank, Nigeria’s third largest lender by market value, had the lowest year-end ratio among the tier one banks, Access, FirstBank and GTB, at 50.71 percent, down from 53.34 percent in 2011.

Among mid-tier lenders, Diamond, Skye, Fidelity and Stanbic IBTC, Fidelity Bank had the lowest year-end ratio at 48.20 percent, down from 49.53 percent.

Stanbic IBTC Bank had the highest year end ratio among the nine banks at 74.94 percent.

Loan-to-deposit ratios measure how inclined bankers are to lending, with higher numbers signaling a more aggressive stance.The total banking industry loan to deposit ratio, averaged 71 percent in 2008, according to data from the Central Bank of Nigeria (CBN) banking supervision annual report.

The CBN has set a prudential requirement of a maximum loan to deposit ratio of 80 percent for Nigerian banks.

Consumers and companies are unable to access more credit in the short term, until interest rates moderate and banks shift their lending model, according to analysts, even as the CBN maintains near-record high interest rates, designed to support a bid for naira denominated assets.

“Interest rate and yield environment was attractive and many of the banks played within that space,” Abiodun Keripe, an analyst at Investment One financial services limited, said in an email response to questions.

“It was sensible lending money to the government and trading treasury bills, rather than expose them via risk asset creation.”

Putting more of the banks unused money to work could help create jobs for the Nigerian economy, whose 6.8 percent growth in Gross Domestic product (GDP), in 2012, was below potential double digit output, leaving 23 percent of the labour force unemployed, according to National Bureau of Statistics (NBS) data.

AMCON , a unique institution that combines buying non performing loans (NPLs), with loan restructurings and recapitalising troubled financial institutions , has spent N5.6 trillion ($35.2 billion) to acquire non-performing loans from banks, reducing industry wide NPLs to below 5 percent.

Nigerian banks have cut back lending as regulators pressure them to curtail risks that fueled the 2009 domestic banking crises. They are also facing tighter rules and capital requirements that require them to evaluate borrowers more stringently through credit bureaus.

“The starting point to making affordable credit available is through the tried and tested means of achieving low inflation over time,” said Razia Khan, regional Head of Research, Africa, at Standard Chartered Bank, in a response to questions.

“That has to be the most stable basis for any lending take-off. Nigeria has benefited from tighter policy, but it is not there yet.”

“From the demand side, the cost of borrowing tends to be unattractive to the retail consumer and as such there is low demand for consumer financing,” Keripe said.

“However, most tier-1 banks management have given guidance of about 15% to 20% loan growth in 2013 just as they also seek to grow deposits. Energy/Power sector reforms underpin this growth outlook.”