Zenith Bank, a tierone lender, is looking to increase its presence in Nigeria’s retail banking space in a bid to meet up with a regulatory benchmark for loan issuance after midyear result revealed a drop in the lender’s loan- todeposit Ratio (LDR).
The bank which is Nigeria’s second- largest by market value reported its LDR at 51.24 percent in the half- year period on
the back of a 3.2 percent growth in customer deposit to N3.81tn while loan book has shrunk by 3.2 percent since the start of the year.
“We are creatively deploying new retail loan products to ensure we capture a reasonable share of the retail loan market,” the bank said in an emailed statement to Bloomberg. The big lender said an increase in lending will improve its non-performing loan ratio, which deteriorated to 5.3% from 5%, owing to the drop-in credit in the first half.
As a percentage, Loanto-deposit ratio measures how much a bank gives as a loan from the customer deposit it receives in a period.
Zenith’s mid-year LDR which is 8.8 percentage points below 60 percent minimum of the Central Bank of Nigeria the bank at risk of losing part of its funds if the lending gauge is not improved.
“In the absence of an expansion of the bank’s loan book by c.n334bn in Q3-19 or a cutback in deposits by N518bn ( assuming loans are constant in Q3-19), over N150bn of Zenith’s funds could be sterilised by the CBN,” analyst at Lagosbased Investment House, Chapel Hill Denham said in a note to clients.
The analysts say this may further dampen the bank’s interest income in the second half and in full year 2019.
The Central Bank in July issued a directive mandating Nigerian Banks to loan out a minimum of 60 percent of consumer deposits it received to boost credit and stimulate economic growth. Whilst the deadline for the stated target is the end of September, the minimum LDR would be reviewed quarterly, the bank has said.
According to the apex bank, lenders that fail to meet its minimum lending requirement will be required to raise their Cash Reserve Requirement equal to 50 basis point of how much it missed the LDR target. In other words, erring lenders would increase the reserve they keep with the CBN.
In the six-month ended June, Zenith Bank posted an increase in its Profit After Tax up to 8.7 percent. Noninterest income surged 23.9 percent to N109.73billion driven by growth in electronic banking.
The bank’s shares gained 2.35 percent on Tuesday to advance for the second straight day this week. Zenith proposed a dividend per share of 30kobo for mid-year 2019.
