• Friday, March 29, 2024
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CBN goes tough against banks for LDR, treasury bills infractions

CBN

 

The Central Bank of Nigeria (CBN) said on Friday that it will sanction deposit money banks and their customers who are abusing the Loan to Deposit Ratio (LDR) by diverting the loans to treasury bills and Open Market Operations (OMO).

Isaac Okorafor, Director, corporate communication who spoke to a journalist on the sidelines of the International Monetary Fund (IMF)/Wold Bank annual meetings in Washington, D.C. said banks and customers will be punished and blacklisted for arbitrage.

The CBN had raised the LDR to 65 percent and set December 2019 as deadline for compliance by banks. It has been observed that banks give loans to customers who  in turn divert the funds to buy treasury bills and other government securities to earn more money.

Also, there were cases of diversion of funds accessed from CBN’s intervention funds and development finance institutions at as low as 7 percent to investing in government securities at 14 percent.

“Any customer found arbitraging will be blacklisted, names will be published in the newspapers and the banks will be penalised,” Okorafor said.

“Our policy is meant to spur manufacturing output. We have started to see banks now marketing their customers for loans including consumer credits and mortgages,” he said.

He said now that these are coming at low rates, manufacturing companies should concentrate on their manufacturing businesses and not on arbitrage. This is how manufacturing output and GDP can be boosted.

We are saying banks must lend. So we prescribed the LDR. Now that they are ready to lend and at reasonably low rates not buying securities, people should not borrow to buy securities thereby arbitraging. The economy must see growth induced by higher consumer and manufacturing output. We will be tough on banks and companies that would attempt to game our policies through financial markets arbitrage,” Okorafor said.

He advised that if borrowing rates from banks are coming down, companies should take the loans to conduct their manufacturing business and not get involved in arbitrage.