Nigeria: Accelerating Bank Lending

Nov 24, 2020 | This day - All Africa

As part of efforts to unlock consumer and real sector lending in the country, the Central Bank of Nigeria (CBN) had in July 2019, announced an increase in the required minimum Loan-Deposit Ratio (LDR) to 60 per cent, a policy which became effective at the end of September 2019.

However, upon review of the results of the policy, the CBN then decided to raise the ratio higher to 65 per cent and banks were then directed to comply with by the policy by the end of December 2019.

Almost one year after the last increase in the policy which sought to trigger growth in a weak economy, analysts have continued to analyse its impact on the economy.

The CBN had in a letter to banks on the lending policy, stressed that the LDR would be subject to quarterly review. Owing to this, it even had course to sanction banks that fell short of the directive.

Indeed, the policy was aimed at encouraging SMEs, retail, mortgage and consumer lending and these sectors were assigned a weight of 150 per cent in computing the LDR.

"Failure to meet the above minimum LDR by the specified date shall result in a levy of additional cash reserve requirement (CRR) equal to 50 per cent of the lending shortfall of the target LDR.

"The CBN shall continue to review development in the market with a view to facilitating greater investment in the real sector of the Nigerian economy," the banking sector regulator had stated.

In assessing the impact of the policy on credit growth in the economy, analysts at CSL Stockbrokers Limited, stated that data sourced from the Nigerian Bureau of Statistics (NBS) showed that aggregate banking sector credit to the economy stood at N18.8 trillion at the end of the second quarter 2020, which represented an increase of 15.8 per cent from the aggregate banking sector credit of N16.3 trillion at the end of the third quarter 2019 before the minimum LDR was raised to 65 per cent.

According to the Lagos-based financial advisory firm, "much more impressive was the 24.4 per cent growth in aggregate banking sector credit when compared with the total of N15.1 trillion at the end of the second quarter 2019, before the minimum LDR of 60 per cent was announced."

This, it stated, compares with a decline of 2.3 per cent and 3.9 per cent in aggregate banking sector credit in 2017 and 2018.

"Thus, on the credit growth front, it can be said that the CBN has been successful at driving credit growth," it added... Read more on All Africa

Source: All Africa