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CBN sees banks moving in right direction on new lending measures

The Central Bank of Nigeria (CBN) is seeing signs that its order to commercial banks to turn on the tap on lending to small businesses is yielding fruit, according to a source at the apex bank.

“Lending rates are trending downward and that’s a big sign that banks are already looking for means to create loans so that they can avoid being debited. So yes, there are some early signs there is compliance,” a source at the CBN who did not want to be named told BusinessDay on Monday.

“The CBN is already gathering data that will show the banks that are complying and the ones that are not, and that data will dictate what we do next,” the source said. “All the CBN wants is for banks to perform their core function, which is to lend.”

In a bid to ease lending to the private sector and stimulate an economy still reeling from a contraction in 2016, the CBN rolled out new lending measures in the past week and focus has now shifted to how far the apex bank will go to achieve its desire for banks to lend to small businesses.

The first directive was an order that banks lend at least 60 percent of their deposits to small businesses before the end of September.

Then a measure that cut how much money lenders can keep in interest-bearing accounts with the apex bank by 73 percent followed.

The central bank source said the apex bank was prepared to introduce “sterner measures” if it isn’t satisfied with the result of both measures.

The Abuja-based bank is, however, willing to extend the deadline for compliance with the loan to deposit ratio if it is satisfied with the efforts of banks to grow their loan books.

BusinessDay analysis shows that the banks would need to create loan assets of N1.3 trillion to meet the latest regulatory requirement.

Nigerian banks became risk-averse after an economic contraction in 2016 caused bad loans to surge. The banks soon found solace in lending to government with the promise of double-digit return, thereby largely shelving private sector lending due to the perceived risk involved.

The practice turns the core function of lenders on its head and the CBN is seeking ways to change that.

Some banks say they are willing to start lending again while others feel somewhat uneasy growing their loan books in a risk-laden environment.

Herbert Wigwe, CEO of Access Bank, the country’s largest bank by assets, said the CBN’s lending measures “will help our financial discipline and help small and medium scale enterprises (SMEs) to grow in Nigeria”.

“It can only make banks focus on it even more and faster and helps to stimulate growth,” Wigwe said in an interview with Bloomberg.

The impact of Nigerian banks’ risk-averseness has been telling on the economy which has not grown fast enough to create new jobs for burgeoning population.