• Thursday, February 29, 2024
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These 5 banks need to boost loans to comply with CBN’s new directive

Revisiting key issues in loan delinquency governance

Five commercial banks currently fall short of the Central Bank of Nigeria’s (CBN) new lending guidelines.

The CBN on Wednesday said it was mandating deposit money banks to have a Loan to Deposit Ratio (LDR) of 60 percent by the end of September 2019, 150 basis points higher than the industry average of 58.5 percent as at May.

The new directive is in a bid to spur credit growth to the economy by forcing commercial banks to lend more to businesses and cut down on their investment in government treasury bills.

According to the apex bank, a failure to meet the minimum LDR of 60.0% by the specified date will result in a levy of additional Cash Reserve Requirement (CRR) equal to 50.0 percent of the lending shortfall of the target LDR.

Based on first quarter numbers published by the commercial banks, five banks have a loan to deposit ratio lower than 60 percent.

These banks include Guaranty Trust Bank (54 percent), Zenith Bank (56 percent), First Bank of Nigeria Holdings (49 percent), Stanbic IBTC (49 percent) and United Bank for Africa (48 percent).

Assuming deposits are unchanged from Q1’19 levels, these five banks would likely have to grow loans by a mean of 14.3 percent to meet the requirement, according to estimates by the research arm of investment bank, Cardinal Stone.

By implication, these banks may be required to create an additional N1.3 trillion in credit assets by September 2019.

“Our analysis suggests that UBA may likely have to grow loans by 19.4 percent, while Zenith bank could require the least loan growth of 6.2 percent,” Phillip Anegbe and Jerry Nnebue of Cardinal Stone said in a July 4 report to clients.

The estimated loan growth that may be required by GTB and Zenith to meet the regulatory requirement already falls within their FY’19 guidance.

Anegbe and Nnebue were of the opinion that the September timeline may be too short for non-compliant banks given the unfavourable macro-economic environment and that may “force the CBN to extend the current timeline.”

Shares of GTB and UBA closed lower on Thursday, while Zenith, First bank and Stanbic were unchanged from the previous trading day.