As part of strategies to meet up with the 60 percent Loan Deposit Ratio (LDR) directive by the Central Bank of Nigeria (CBN), deposit money banks may begin to reject customer deposits, leading to reduced interest expense, according to Agusto & Co, a Pan African Credit Rating Agency and a leading provider of industry research.
The CBN has mandated all DMBs to maintain a minimum loan to deposit ratio (LDR) of 60 percent by September 30, 2019. The focus of the minimum LDR requirement is to drive demand for consumer and mortgage credit .
In meeting up with the requirement, the rating firm foresees price war in the banking sector where tier I banks that are more advantaged in terms of low cost funds could cherry-pick customers of tier II banks. and negotiate for a lower interest from such clients.
Ada Ufomadu, senior banking analyst at Agusto & Co said most Tier 2 banks comply with the new LDR minimum requirement, but not all Tier 1 banks do.
“We do not foresee a significant increase in loan book due to a potential increase in credit risks,” Ufomadu said while unveiling the banking industry report in Lagos on Thursday.
She explained that before the new regulation of 60 percent LDR there used to be a maximum loan to deposit ratio of 80 percent for the banks.
“Banking industry as it is now is made up of 27 operators. There were five new licenses by the CBN so we are looking at an industry with more than 30 players as at date.”
The industry is still very much controlled by five banks – GTBank, Access, UBA, Zenith and First Bank. These banks accounts for about 57 percent of the industry’s asset and about 59 percent of the industry loan book.
According to the firm’s report, in 2018 the asset of banking industry was about N33.3 trillion and growth in 2019 will be driven largely by the fact that a lot of banks are raising capital.
Access Bank plc has already concluded the process for the issuance of a N30billion Tier 2 Bond due 2026. The bank in an August 2 notice told the Nigerian Stock Exchange (NSE) that the Central Bank of Nigeria (CBN) ‘No Objection’ to the Bond issuance as well as Securities and Exchange Commission (SEC) approval has been obtained.
“In 2019 we think that as the economy is opening and things are getting better, talking about exchange rate stability, there will be transactions especially short-term trade transactions that will help the banks loan book grow,” Ufomadu said.
Speaking on pension industry report, Jimi Ogbobine, head research, said 15 years after the introduction of the Pension scheme in Nigeria, the Industry is still at its growth stage, with only 12.2 percent of Nigeria’s employed population covered by the scheme.
“We view positively the commencement of the Micro Pension Scheme (MPS), which we believe would increase the Industry coverage ratio and help ramp up AuM. Nonetheless, we are of the view that the success of the MPS would hinge on the ability of both the regulator and operators to offer value adding sweeteners including such as minimum pension guarantees as well as health insurance benefit,” Ogbobine said.
The Industry’s regulatory environment requires a number of reforms to bring it to terms with global practice, which the firm believes should provide further impetus for improved fund performance and industry growth.
“Overall, we expect the Industry’s growth to exceed 14 percent in 2019 and average 12.5 percent over the next five years,” he added.
HOPE MOSES-ASHIKE
