Banks’ deposit with the Central Bank of Nigeria through the standing deposit facility dropped by 68 per cent in the first nine months of the year as a result of pressure to meet the 60 per cent Loan-to-Deposit Ratio deadline of September 2019.
Specifically, it was learnt that banks’ deposit with the apex bank dropped to N9.7tn from N30.4tn that was reported in first nine months of 2018, indicating a decline of 68 per cent.
The apex bank has just increased the LDR to 65 per cent from initial 60 per cent after deducting a total of N499.2bn from the accounts of 12 banks under its supervision due to their failure to meet the September 30, 2019 deadline stipulated for them to maintain 60 per cent LDR.
Analysts said all Tier-II and weak Tier-I banks increased deposit with the CBN following the decline in Monetary Policy Rate in a move to boost liquidity to drive daily business activities. The Monetary Policy Committee on March 26, 2019 voted to reduce the MPR to 13.5 per cent from 14 per cent.
Our correspondent gathered that the CBN’s policy of July 11 forced weak banks to reduce deposit and concentrate on growing the LDR.
According to him, banks were keen in lending to real sector so as to meet the 60 per cent LDR by September 30, 2019.
He said, “Banks were aware of the CBN plans to introduce 60 per cent LDR policy this year. As a result of that, they needed the money to lend to the real sector and meet the benchmark. Before now, banks were facing Cash Reserve Ratio of 22.5 per cent. If you combine the CRR and 60 per cent LDR, there is no way the SDL of the CBN will not reduce.”
Ojo said banks not depositing with the CBN would amount to more lending to the real sector and growth in the nation’s economy.
He said, “There will be more funds going into agriculture, manufacturing, the Small and Medium Enterprises, oil and gas, among others. This is expected to drive growth in the real sector.”
He noted banks had to comply with the CBN’s directive and lend to the real sector, indicating improved lending in the banking sector.
He maintained that the day-to-day deposit on the SDF of the CBN was expected to drop as banks were lending to the real sector.
But analysts at CardinalStone Research explained that “the recent revision of the SDF guidelines is unlikely to drive material credit creation in isolation.
“We, therefore, believe that the apex bank is likely to introduce additional policies to complement the recently issued regulatory measures.”
They said the new measure was also not likely to drive real sector lending, given that banks were still able to redirect excess cash to money market instruments at the secondary market.