Banks Jostle to Unlock N1.5tn for Real Sector Lending

Obinna Chima

Commercial banks are positioning themselves to attract more customers in the small business segment of the market as the deadline given by the Central Bank of Nigeria (CBN) for the financial institutions to maintain a minimum Loan to Deposit Ratio (LDR) of 60 per cent effective from September 30, 2019, draws closer.

The new LDR is lower than the 80 per cent it was previously.
To the Head of Research and Strategy at FSDH Merchant Bank, Mr. Ayodele Akinwunmi, the policy would make more money from banks’ customer deposit to be channeled as lending to the real sector of the economy. According to him, it could unlock over N1.5 trillion for lending to the sector.

THISDAY investigation showed that since the policy was announced, banks have intensified strategies to bring operators of small businesses together with the intention of building banking relationship with the entrepreneurs.
For instance, while Access Bank Plc has organised a forum for operators in the creative sector, Fidelity Bank has collaborated with PricewaterhouseCoopers to provide funding for SME operators.

On its part, the United Bank for Africa (UBA) has held an entrepreneurial fair at Abuja.
First Bank of Nigeria Limited and First City Monument Bank, in the past few weeks have intensified their reward schemes to boost their market share in the small business market.

Heritage Bank has also been prominent in various entrepreneurial and talent hunting initiatives.
THISDAY gathered that the trend is expected to be intensified in the coming days as the deadline draws closer.
Commenting on the move by banks to increase their market share in the small business segment of the market, the Director General, Lagos Chamber of Commerce and Industry (LCCI), Mr. Muda Yusuf, acknowledged in a telephone interview with THISDAY that the banks have been doing quite a lot.

He said: “The bigger challenge has to do more with the environment in which the SMEs are operating. Firstly, many of the SMEs are not prepared. For them, they think you just walk up to the bank and collect the money, which is a major bottleneck.
“Then, the risk environment, which is not in the hands of the banks, is also a problem. If businesses are operating in an environment where there are too many challenges, it will be difficult for them to operate profitably and that affects the capacity to repay their loans.”

However, he said the banks would also need to be creative in how they access the SMEs.
“We should also have a good data bank for the profiling of SMEs and they should make better use of the credit bureau; they should be able to take more risks and not just to sit in the comfort zone of not wanting to take any risk at all.”

Analysts at Moody’s Investor Series pointed out that consumer lending in Nigeria was hampered by lack of good household credit records and weak recovery enforcement, adding that midsize banks in the country tend to have higher exposure to consumer and that SME loans tend to report higher non-performing loan (NPL) ratios.

The CBN had said the new LDR would be subject to quarterly review.
“To encourage SMEs, retail, mortgage and consumer lending, these sectors shall be assigned a weight of 150 per cent in computing the LDR for this purpose. The CBN shall provide a framework for classification of enterprises/businesses that fall under these categories.

“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 regulator had added.

As part of the measures to encourage lending to the real sector, the CBN had also announced that it would no longer remunerate daily bank deposit in excess of N2 billion placed at its Standing Deposit Facility (SDF), just as it would soon restrict banks’ investment in treasury bills.