Bankers Back CBN’s Initiative to Boost Lending to Economy

•  Say N499bn deducted by apex bank not fines

James Emejo in Abuja

The Bankers’ Committee Thursday expressed support for the current efforts by the Central Bank of Nigeria (CBN) to improve credit flow to key sectors of the economy, particularly through the latest initiative on the loan to deposit ratio (LDR).

The committee has also clarified that the N499,175,535,097 deducted by the apex bank from the accounts of 12 banks for their failure to meet the September 30 deadline to maintain 60 per cent LDR, is neither fines nor levies, adding that the monies would be refunded once the banks met the LDR requirements.

The bankers agreed that the apex bank’s directive was in the overall interest of the economy as it would further encourage lending by commercial banks as well as boost aggregate demand.

Addressing journalists shortly after the regular meetings of the committee in Abuja, the Managing Director/Chief Executive, Zenith Bank Plc, Mr. Ebenezer Onyeagwu, alongside other chief executive of banks, said the banking industry was in agreement with the CBN particularly on the LDR, which will boost growth of credit in the system.

This is as the CBN Director, Banking Supervision Department, Mr. Ahmad Abdullahi, also said the industry was satisfied with the increase of credit flow to key sectors of the economy as a result of the LDR policy as well as improvements in remittances into the economy.

Other bank MDs present, including Managing Director/Chief Executive, Stanbic IBTC Bank, Mr. Demola Sogunle; Executive Director, Risk, Standard Chartered Bank, Mrs. Mobola Faloye; and Managing Director, Citibank Nigeria, Mr. Akinsowon Dawodu, all described the LDR as a milestone and game-changer in efforts to increase lending to the economy.

The committee has also clarified that the N499,175,535,097 deducted by the apex bank from the accounts of 12 banks for their failure to meet the September 30 deadline to maintain 60 per cent LDR, were neither fines nor levies as reported.

Onyeagwu said the deductions would be refunded once the banks met the LDR requirements.

He said: “The CBN never stated that the debits were fines. If you go back to the circular, what it said was that at the cut-off point at the event that you do not meet the threshold, funds will be debited from you and added to your CRR. So, what you have there is not a fine rather it is a levy but it’s just a shortfall based on the parameters that the CBN has set.

“However, even if at the cut-off point of September 26 adopted by CBN, you were short in terms of what you were supposed to do, CBN is not a closed session, it continues. CBN would look at your figures subsequently and where you achieve a loan growth, you have a refund, if you also have a drop in your deposit compared to that cut-off, you will now have debit.

“So, it’s going to be a continued dynamic process where the whole essence is to see that we don’t just have a one-off growth but a continued process of creating an enabling credit in the system.”

Shortly after the expiration of the September deadline for banks to maintain an LDR of 60 per cent, the CBN had said a total value of banking sector credit increased significantly by N829.40 billion or 5.33 per cent, from N15.568 trillion as at the end of May 2019, to N16.397 trillion as at September 26, 2019, since it announced the new LDR rule in July.

Asked why the banks have had to wait this long and eventually compelled by the CBN to lend this much to the real economy, the Zenith bank boss said the kind of incentives presented today had never existed to woo the banking industry.

“The incentives in the market now had not been there. There are a lot more incentives for us to create loan and one of them is the initiative to include the fact that using the capability of the BVN.

“A delinquent or defaulting borrower can be traced within the system and where he has funds in other banks and he’s keeping a loan delinquent in another bank, it can be recouped because the biggest challenge we have in creating loan is character.

“We can understand when you have business challenges but if you have character and you have business challenges, what do you do? You sit with your bank and go through the recovery process but once the character is lacking, you see that once you see any spike or upheaval, the borrower takes a flight. But with what we have now, it can’t happen and that is an incentive.”

However, Sogunle further conveyed the determination of bankers to also meet the new 65 per cent LDR requirement by December, adding that the directive by the CBN remained a milestone and positive for the economy, stressing that the industry was ready to comply.

He said as a result of the latest intervention by the CBN, customers could now borrow more from banks at cheaper interest rate than it was few years ago.

Dawodu, on his part, also attested to the significant improvement in the credit risk environment, adding that this will further protect banks’ balance sheets as well as encourage more lending to the real sector.

The committee also praised the apex banks’ cashless policy, saying that it remains in the overall interest of Nigerians.