International Finance

CBN deadline: Nigerian banks scramble for borrowers

Nigeria CBN
Tier-1 banks with assets greater than or equal to N1 tn are luring borrowers in Tier-2 banks with attractive interest rates

Nigerian Banks are desperately seeking borrowers as the Central Bank of Nigeria (CBN) has made it mandatory for banks to give out 60 percent of their deposits as loans. The deadline to implement the Central Bank of Nigeria’s 60 percent minimum Loan to Deposit Ratio (LDR) policy is September 30.

According to the apex bank, banks that do not comply with the new policy will see their Cash Reserve Ratios (CRR) being increased. To make sure they meet the deadline, Tier-1 Nigerian banks with assets greater than or equal to N1 trillion are now luring borrowers in Tier-2 banks with attractive interest rates. Some of the banks in the Tier-1 category include First Bank, Access Bank, Zenith Bank, United Bank for Africa, and Guaranty Trust Bank.

Ada Ufomadu, senior analyst at a leading credit rating agency told the media that, “Most Tier 2 banks comply with the new loan to deposit ratio minimum requirement, but not all Tier- 1 banks have complied with the Central Bank of Nigeria’s policy and short timeline for the policy implementation remains a challenge.”

According to her, the industry loan to deposit ratio stood at 80.1 percent in 2016; 75.1 percent in 2017 and 66.4 percent in 2018. In the last couple of years, banks have not been aggressive when it comes to lending. With the introduction of the new policy, the Central Bank of Nigeria aims to improve market liquidity and at the same time encourage banks to increase their lending to the productive sectors of the economy.

Nigeria’s President Muhammadu Buhari has asked the apex bank to stop providing foreign exchange for importation of food into the country. His instructions are in line with the country’s efforts to improve Nigeria’s agricultural production and attain full food security.

Nigeria’s central bank also released guidelines for the payment of lower denominations of the Naira through microfinance banks.

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