Banks Intensify Drive to Meet 60% Loan-to-Deposit Target

Obinna Chima

With two weeks to the September 30 deadline given by the Central Bank of Nigeria (CBN) for commercial banks to maintain a minimum Loan-to-Deposit Ratio (LDR) of 60 per cent, the financial institutions have launched an aggressive deposit drive to meet the target, findings by THISDAY have shown.

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.

THISDAY, however, gathered that while some banks have exceeded the 60 per cent target, some are slightly below it.
In their moves to achieve the target, some banks’ recently released half-year results showed that most of them recorded improved customer deposits. For instance, while GTBank’s customer deposits increased by 6.3 per cent to N2.418 trillion, from N2.274 trillion as of December 2018; Access Bank’s customer deposits increased significantly by 63 per cent to N4.18 trillion in June 2019, from N2.57 trillion in December 2018 and the United Bank for Africa (UBA) Plc recorded 4.8 per cent growth in customer deposits, to N3.510 trillion as at June 2019, from the N3.349 trillion it was a year ago.

An analyst at Ecobank Nigeria, Kunle Ezun, told THISDAY that since the policy was announced, banks have been aggressive in shoring up their Current and Savings Accounts (CASA).

Ezun said CASAs are the life wire of the banks.
“In some banks today, they have even announced that staff that can bring in enough deposits from CASA would be rewarded. So the idea is to grow your deposits so that you can have more funds to be deployed as loans.

“So, the banks are aggressively growing their deposits to meet the deadline. What the CBN is saying is that the banks should have a minimum LDR of 60 per cent, which for me is a lovely idea that is geared towards driving economic growth.

“By my calculation, if the banks that are below 60 per cent LDR decide to grant loan, over N1 trillion would be channelled into the system; you can imagine what would happen if we have over N1 trillion in the system.

“That is why we can see a lot of the big banks doing advertisements around their consumer lending products.
“They all need cheap loans to do all of that. I believe that to leapfrog economic growth, banks need to lend to SMEs and provide loans for consumer lending. That is how we can grow the economy and that is why I support the CBN policy,” he added.

A Director and Group Head, Investment Banking at Coronation Merchant Bank Limited, Mr. Abiodun Sanusi, said the overall impact of the LDR policy was that banks would be willing to give out more loans.

“So, overall there is a huge positive gain in this 60 per cent loan-to-deposit ratio, which means more loans would be given at longer maturity tenor,” he added.

The Managing Director/Chief Executive Officer, Guaranty Trust Bank Plc, Mr. Segun Agbaje, in a recent interview on Arise Television, the broadcasting arm of THISDAY Newspaper, said with the industry LDR already at 57 per cent, banks only have to struggle to achieve three per cent to get to the prescribed limit.

“Growing three per cent by the end of September, for most banks, they would get really close while some would go over it. So, I think the CBN is being measured in its approach.

“If we had gone from 57 to 80 in three months, then we would have had a lot of chaos. 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,” Agbaje added.
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 stated 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 restrict banks’ investment in treasury bills.