Nine DMBs Failed to Meet CBN’s 65% LDR Requirement in 2022

Kayode Tokede

Following a tough operating environment, leading banks in the country failed to meet the Central Bank of Nigeria’s (CBN) 65 per cent Loans-to-Deposit Ratio (LDR) in the 2022 financial year.

In a bid to increase lending to the real sector and create job opportunities, the CBN had in July 2019, announced an increase in the required minimum LDR to 60per cent effective end of September 2019.

The banks are; Access Holdings   Plc, Guaranty Trust Holdings Company Plc (GTCO), United Bank for Africa Plc (UBA) and Zenith Bank Plc. Those in the Tier-2 category that met the CBN’s LDR include FCMB Group, Union Bank of Nigeria Plc, Stanbic IBTC and Fidelity Bank Plc with Sterling Bank reporting LDR below 60 per cent in 2022.

THISDAY analysis of the banks’ results revealed that most of the bigger banks have in the last four years defied the LDR policy that mandated lending to real sector and stimulate economic growth.

Upon review of the results of the policy, the CBN decided to raise the ratio higher to 65 per cent which banks were expected to comply with by the end of December 2019.

A breakdown showed that Access Holdings in 2022 reported 58.70 per cent LDR as against 50.80 per cent in 2021, as Zenith Bank plc (Bank) LDR’s dropped to 51.6 per cent in 2022 from 62.6 per cent in 2021.

The group’s LDR of Zenith Bank dipped to 45.9 per cent in 2022 from 54.1 per cent amid 18per cent and 39per cent increase in gross loans and customers’ deposits in the year under review.

For GTCO, it closed the year with 39.8 1per cent LDR as from 42.08 per cent reported in corresponding period of 2021 as UBA’s LDR dropped to 34.87 per cent LDR in 2022 from   38.17 per cent in 2021.

UBA in 2022 reported N8.99 trillion Customer Deposits, an increase of 28.1 per cent from N7.02 trillion in 2021, while its loans to customers increased to N3.44 trillion, up by 21.4 per cent from N2.83 trillion in 2021.

Despite aggressively growing customers’ base, and sustained increase in loan & advances to customers, these Teir-1 banks between 2019 and 2020 have come short of meeting the LDR policy of CBN.

However, the likes of Sterling Bank reported 54.10 per cent LDR in 2022 from 58.50 per cent in 2021, while FCMG group closed 2022 with 60.30 per cent LDR compared with 65 per cent in 2021.

Lenders have been cautious of extending credit to the private sector due to the country’s macro economy downturn, occasioned by the impact of post-COVID-19 and central banks hiked interest rates to combat inflationary pressures (particularly energy & food).

 The 2022 banking sector performance is coming on the heels of global economy that is on a tight rope – ongoing global banking crisis (Silicon Valley Bank, Signature Bank, Credit Suisse with a possible trickledown effect on emerging economies including Nigeria; ongoing impact of Ukraine/Russian war; knock on effect of supply chain constraints from China lockdowns.

Despite Nigeria’s annual Gross Domestic Product (GDP) growth rate slowing to 3.10 per cent in 2022, compared to 3.40 per cent in 2021, these five banks declared a significant increase in customer loans and advances and deposits.

Finance experts have blamed slow growth in banks’ LDR to macro economy challenges.

Amid Tier-1 weak performance in LDR, total gross credit increased by N5.14 trillion or 20.93 per cent between the end of December 2021 and December 2022, from N24.57 trillion to N29.72 trillion, due to the increase in the industry funding base as well as the CBN’s directive on LDR, which has encouraged banks to increase lending to the real sector of the economy, and business strategy and competition.

“The increase in credit to the key sectors of the economy is expected to bolster aggregate demand and promote economic growth, job creation, and poverty alleviation, “said Deputy Governor, Economic Policy, Kingsley  Obiora in his personal statement at the first Monetary Policy Committee (MPC) meeting in 2023.

The Vice President, Highcap Securities Limited, Mr. David Adnori stated that the demand by CBN on 65 per cent LDR is a difficult task, stating that, “Loans are granted to borrowers’ in-line with the cannon of lending.

According to him, “Every bank has it peculiarity of lending to real sector in terms of existing exposure to client; how those funds are performing? Also, the kind of deposit they have to extend lending to real sector. Lending to real sector is not something that can be regulated.”

Speaking with THISDAY, Chief Research Officer, InvestData Consulting Limited, Mr. Omordion Ambrose blamed these Tier-1 banks caution at lending to real sector amid Non-performing Loans (NPL) reduction.

According to him, “Most of these Tier-1 banks are being careful with the level of their non-performing loans and this is the reason why they have NPL that is below five per cent, which falls within the CBN regulatory requirements.”

However, the CBN had pointed out that failure to achieve the target would continue to attract levies of additional cash reserve requirement of 50 per cent of the lending shortfall of the target LDR.

“The CBN has noticed remarkable increase in the size of gross credit by deposit money banks (DMBs) to customers. “Accordingly, the CBN has decided to retain the minimum 65 per cent LDR in the interim. All DMBs are required to maintain this level and are further advised that average daily figures are to be applied to assess compliance going forward.

“The incentive which assigns a weight of 150 per cent in respect of lending to SMEs, retail, mortgage and consumer lending shall continue to apply, while failure to achieve the target shall continue to attract a levy of additional cash reserve requirement of 50 per cent of the lending shortfall of the target LDR on or before March 31, 2020.

 “DMBs (Deposit Money Banks) are further encouraged to maintain strong risk management practices regarding their lending operations. The CBN shall continue to monitor compliance, review market developments and make further alterations in the LDR as it deems appropriate,” it stated.