Businesses Anticipate Liquidity Boost as Deadline for New Lending Policy Ends Godwin Emefiele

CBN Governor, Mr. Godwin Emefiele

Obinna Chima

As the deadline given by the Central Bank of Nigeria (CBN) for commercial banks to maintain a 60 per cent loan-to-deposit ratio (LDR) ends today, operators of businesses have expressed optimism about increased lending in the economy.

They also described the policy as a step in the right direction.

The total industry LDR stood at 57.64 per cent as at July 2019, which is just less than three per cent below the target, according to the latest CBN monthly economic report.

It has been predicted that the new policy would unlock about N1.5 trillion bank lending for businesses.

The CBN had said the new LDR would be subject to quarterly review.

Commenting on his expectation, the Director General, Lagos Chamber of Commerce and Industry (LCCI), Mr. Muda Yusuf, said the greatest challenge business operators have been facing over the years was access to credit, which has resulted in huge financing gaps.

He added that the banks have also been focusing on attractive government securities, thereby neglecting MSMEs desperately in need of loans.

“These developments created considerable distortions in the financial markets and considerably impeded domestic investment. It created major financial intermediation issues as the banking system became largely disconnected from the investing public. The real sector investors and the SMEs were the foremost victims of this distortion.

“The LCCI sees this new lending policy as a timely policy intervention to normalise the credit markets, spur economic growth and broaden the interface between entrepreneurs and the banking system. The banks will be obligated to be more tolerant of the entrepreneurs and be more creative in the creation of financial assets. The LCCI expects that the new lending policy would impact the economy positively,” he stated.

On its part, Moody’s Investor Service said the policy would help to stimulate consumer lending in Nigeria.

“The directive aims to stimulate lending to the real economy. To motivate small and midsize enterprise, retail, mortgage and consumer lending, loans to these sectors will be assigned a weight of 150 per cent when calculating the LDR for this purpose.

“Banks that fail to meet the 60 per cent minimum LDR will pay an additional cash reserve requirement (CRR) equal to 50 per cent of their lending shortfall,” it said.

It pointed out that consumer lending in Nigeria was hampered by lack of good household credit records and weak recovery enforcement, adding that midsize banks tend to have higher exposure to consumer and that SME loans tend to report higher non-performing loan (NPL) ratios than large banks.

Furthermore, the rating agency noted that the policy would support loan growth recovery in Nigeria and support banks’ revenue.

The Managing Director/Chief Executive Officer, Guaranty Trust Bank Plc, Mr. Segun Agbaje, had in a recent interview on the policy on Arise Television, the broadcasting arm of THISDAY Newspaper, said: “To boost real sector, you have to lend. There is no way you can boost the real sector without lending. So, this is just to give the banks comfort to be able to grow their loan books and not worry too much about the non-performing loans that happened as a result of that growth.”

The CBN had in a circular on the directive in July, stated that “failure to meet the above minimum LDR by the specified date shall result in a levy of additional Cash Reserve Requirement 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.”