Omobayo Azeez, with wire report
Deposit Money Banks (DMBs) in the country have grown their loan books by N800 billion in an aggressive drive to comply with the 60 percent loan-to-deposit ratio (LDR) mandate given by the Central Bank of Nigeria (CBN).
The CBN had, in a bid to boost economic growth mandated DMBs to give out a minimum of 60 per cent of their deposits as loans with effect from September, 2019.
The apex bank, in a letter to all banks titled: “Regulatory Measures to Improve Lending to Economy”, signed by its Director (Banking Supervision), Ahmad Abdullahi, stated that, “In order to ramp up growth in the Nigerian economy through investment in the real sector, CBN has approved the following measures: All DMBs are hereby required to maintain a minimum Loan to Deposit Ratio (LDR) of 60 per cent by September 30, 2019. This ratio shall be subject to quarterly review.’’
According to monitored news report, the Monetary Policy Committee had further noted the improvements in the financial soundness indicators and urged the management of the CBN to sustain its regulatory surveillance to ensure continued financial system stability.
The committee underscored the need to grow consumer, mortgage and corporate credit to drive aggregate demand and ensure a reduction in unemployment and increase in output growth.
Consequently, the committee urged the management of CBN to fast-track the development of the credit scoring system.
It further commended the introduction of the Global Standing Instruction (GSI) initiative aimed at de-risking credit in the industry by committing bank customers to repay their loans to banks.
The MPC noted the increased supply of micro credit to key Micro Small and Medium Enterprises (MSMEs) and effort through the Nigeria Incentive-Based Risk Sharing System for Agricultural Lending (NIRSAL) Microfinance Bank to extend the reach of its credit facilities across the country, but, however, observed that the growth in credit to the private sector remained significantly low, relative to the absorptive capacity of the economy.
Meanwhile, the initiative has received kudos from all and sundry and that its compliance by banks has started yielding results makes the initiative more laudable.
Speaking in an interview, Kazeem Olanrewaju, managing director and chief executive officer of Baobab Microfinance Bank Limited, said the initiative is going to benefit the real sector in no small measures.
He said operations of microfinance banks run on higher loans and lower deposit from the customers while the reverse is the case with the DMBs which run on higher deposits and lower loan to the economy.
He said: “We all lend money we borrow from other people. What we have in the commercial banks is the opposite; they take a lot of deposits and their activities in the area of lending or creating credit is not as much as the deposit. So, what the CBN is doing is to correct that imbalance.
“If you can take money from the public as deposit, then you should be able to lend to the public. So, this is what the concept is about. Now that commercial banks are scrambling everywhere to get people and different sectors to take loans, and because of the competition in that space, the pricing of loans is coming down; which is good for the economy.
“It is also worthy of note that some of the local banks too are looking for MFBs that are viable so that they can on-lend the funds commercial banks can give. So, it also creates opportunity for the MFBs to get some funding from the commercial banks,” he said.