High CRR Impedes Banks’ Ability to Meet LDR as Many DMBs Violates Policy

THISDAY findings revealed that a number of DMBs’ LDR are below 65 per cent requirement of CBN as disclosed in their half-year ended June 30, 2022 results.

Analysts believe weak LDR by DMBs could also be attributed to the fear of looming Non-performing Loans (NPLs) and a hike in inflation combined with high CRR.

CBN had in 2019 raised the LDR of DMBs to 65 per cent in a move to spur growth in the real sector of the economy.

Some DMBs analysed by THISDAY with LDR below CBN’s requirement are Guaranty Trust Bank Plc, Zenith Bank Plc and other Tier-2 banks.

The banks reported LDR below the CBN 65 per cent benchmark with an exception of Stanbic IBTC, who reported above the requirement.

For instance, GTBank, the banking subsidiary of Guaranty Trust Holding Company Plc has one of the lowest LDR among Tier-1 bank.

GTBank in a presentation to investors/analysts noted that the group’s net loans closed at N1.835 trillion in H1 2022 from N1.803trillion in 2021.

The growth, the bank disclosed, is from the N57.6billion increase in the loan book of Nigeria’s operations, due to increased credit flows to the Corporate (Manufacturing and Telecoms) and Retail Sectors.

“The growth was adequate to offset the negative impact of the translation of Subsidiaries’ Loan balances to Naira based on currency adjustment (N425.05/$1 in H1 2022 vs N435/$1 in 2021).

“Customer Deposit Liabilities grew by 6.24 per cent or N250.3billion from N4.012trillion in 2021 to N4.263trillion in H1 2022 as a result of low-cost funds which increased by 6.5 per cent or N224.2billion from N3.438trillion in 2021 to N3.662trillon in H1 2022, resulting in low-cost deposit mix of 85.9per cent from 85.7per cent in 2021.

“Time Deposit Portfolio also grew by N26.1billion in response to increased competition from FinTech’s and Tier 2 Banks who offered higher interest rates, thereby contributing 14.1per cent to Total Deposits in H1-2022 from 14.3per cent in 2021. Strong execution of the Group’s Retail strategy in the face of challenging operating environment was pivotal to deposit growth.”

On its part, Zenith Bank reported 51.20 per cent in H1 2022 from 54.10 in 2021 while Fidelity Bank recorded improved LDR to 66.1per cent compared to 62.9per cent in 2021 after weighting all permissible loans such as mortgage, SME, consumer loans, among others, while Stanbic IBTC disclosed that its LDR for H1 2022 averaged 79.95per cent.

Commenting, Head, Financial Institutions Ratings at Agusto & Co, Mr. Ayokunle Olubunmi, noted that the requirement for liquid assets and CRR already gulp 57.8 per cent living very little to encourage lending to which he urged for some easing.

He said: “It is going to be difficult for banks to meet this requirement, especially now that the CRR regime is getting very tight. It is presently affecting banks’ ability to give out loans.”

A member of the Monetary Policy Committee (MPC) of the CBN and Associate Professor of Economics, Ahmadu Bello University, Aliyu Sanusi had in his personal statement at the last MPC meeting said, “The industry’s total credit to the economy increased by N5.02 trillion or 22.78per cent between June 2021 and June 2022. Gross industry credit, which stood at N27.06 trillion in June 2022, has risen steadily since 2019, largely due to the Bank’s LDR policy.

“Analysis of the interest rate band reveals that 65.9per cent of customers borrowed a total of N4,768.0 billion at interest rates of less than 15 per cent as of June 2022, suggesting that interest rates are declining as credit to the real sector of the economy continues to increase. As of June 2022, a total of N3,378.0 billion was lent to beneficiaries at less than a 10 per cent interest rate through the CBN intervention funds.”