DMBs Loan-to-Deposit Ratio Shrink Amid Growing Profit

Kayode Tokede

Despite declaring impressive profit in half year ended June 30, 2023, most leading Deposit Money Banks (DMBs) operating in the country reported decline in Loan-to-Deposit ratio (LDR), THISDAY analysis of the banks results has revealed.

The decline is against the stipulated 65 per cent requirement of the Central Bank of Nigeria (CBN). 

Zenith Bank Plc, Guaranty Trust Holdings Company Plc (GTCO), FBN Holdings Plc, Access Holdings Plc, United Bank for Africa Plc (UBA), and Tier-2 banks failed to meet the CBN’s 65 per cent LDR requirement in the period under review.

The CBN had in October 2019 raised the LDR of banks to 65 per cent, after the September 30, 2019 deadline given to the DMBs to meet its 60 per cent directive. The apex banking regulating body, however, extended the deadline to meet the 65 per cent LDR to March 31, 2020.

There were speculations that the threshold could be raised to 70 per cent by the end of 2020, but the CBN stated in the circular that, “All DMBs are required to maintain this level and are further advised that average daily figures shall be applied to assess compliance going forward.”

In the period under review, Access Holdings declared 60.94 per cent LDR as of H1 2023 from 60.06 per cent in 2022, while GTCO announced 36.60per cent LDR as of H1 2023 from 40.9per cent reported in 2022.

Zenith bank, banking subsidiary declared 50.4 per cent LDR in H1 2023 from 51.6 per cent in 2022 as the Group’s LDR closed June 30, 2023 at 46.3 per cent from 45.6 per cent reported in 2022.

As FBN Holdings posted 60.2 per cent LDR as of June 30, 2023 from 55.20per cent in 2022,m while UBA reported 42.03 per cent LDR as of June 30, 2023 from 44 per cent reported in 2022 full financial year.

In addition, Wema Bank declared 46.35 per cent LDR as of June 30, 2023 from 43.95 per cent in 2022, while Sterling Bank announced 63.40 per cent LDR as of June 30, 2023 from 66 per cent, above the CBN’s 65 per cent in 2022.

According to THISDAY findings, Stanbic IBTC and Fidelity Bank were the only DMBs with LDR above 65 per cent threshold of CBN.

Fidelity Bank and Stanbic IBTC announced 83.29 per cent and 72 per cent LDR as of June ended June 30, 2023, respectively.   

DMBs have been cautious of extending credit to the private sector due to the country’s economic downturn, occasioned by the impact of post-COVID-19 which crippled global economy, Russia-Ukraine war, among others.

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.

Meanwhile, THISDAY investigation showed that GTCO, among the investigated Tier-1 DMBs had the lowest LDR.

Access bank with 62.1 per cent LDR in 2019 reported 50.7 per cent in 2020, a decline of 11.4 per cent while GTCO’s LDR closed 2020 at 43.2 per cent from 60.62 per cent reported in 2019.

FBN Holdings’s reported LDR of 46.8 per cent in 2020 from 48 per cent in 2019.

Reacting, the Vice President, Highcap Securities Limited, Mr. David Adnori said 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.

“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. 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 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.

On his part, Chief Research Officer, InvestData Consulting Limited, Mr. Omordion Ambrose said, explained that because the economy is undergoing crisis, there are no good credits, which are seeking for funding.

According to Ambrose, “So, if the banks have to lend, they have to lend to some prime consumers. The banks need to consider if they have enough request to be able to meet that threshold.”

He also noted that banks have a lot of their funds warehoused in the Central Bank in form of Cash Reserve Ratio (CRR), this puts a lot of pressure on them in terms of lending.

“Banks have to balance between liquidity and deposit-to-lending ratios. These factors to be considered before meeting this requirement,” he added.