CBN deducts N500b from Zenith, GTB, Citibank, UBA, 8 others

The Central Bank of Nigeria has deducted N500 billion from the accounts of 12 banks for failing to meet the target to provide credit to their customers.

Among the banks affected are Zenith Bank, UBA, GTB, Standard Chartered Bank and Citigroup Inc.

Citigroup and Zenith Bank Plc got the stiffest penalties, according to the circular sent to the banks by CBN.

The amounts have already been debited, Ahmad Abdullahi, the head of banking supervision, told reporters in Abuja on Thursday. The efforts are aimed at supporting the real economy by extending loans mainly to farmers, small- and medium-sized businesses and consumers, he said.

The sanctions come three months after the CBN gave lenders until Sept. 30 to use 60% of their deposits for loans, or hand half of the shortfall over to it without earning any interest.

The measures are among a raft of rules aimed at forcing banks to extend more credit to help spur economic growth in Nigeria.

Of the six biggest domestic banks, only Access Bank Plc met the minimum threshold by the end of June.

In a circular to banks on 30 September, the Central Bank of Nigeria (CBN) announced it has further increased loan to deposit ratio from 60 per cent to 65 per cent and warned that it shall enforce the rule.

The circular noted the appreciable growth in the level of the industry gross credit, which increased by N829.40 billion or 5.33% from N15,567.66 billion at end-May 2019, to N16,397.06 billion as at September 26, 2019 following its pronouncements on the above initiative.

“In order to sustain the momentum and in line with the provisions of our earlier letter, the minimum Loan to Deposit Ratio (LDR) target for all Deposit Money Banks (DMBs) is hereby reviewed upwards from 60% to 65%.

” Consequently, all DMBs are required to attain a minimum LDR of 65% by December 31, 2019 and this ratio shall be subject to quarterly review. To encourage SMEs, Retail, Mortgage and Consumer Lending, these sectors shall be assigned a weight of 150% in computing the LDR for this purpose.

“Failure to meet the above minimum LDR by the specified date shall result in a levy of additional Cash Reserve Requirement equal to 50% of the lending shortfall implied by the target LDR.

“DMBs are required to continue to strengthen their risk management practices particularly with regards to their lending operations.

“The CBN shall continue to review developments in the market with a view to facilitating greater investment in the real sector of the Nigerian economy whilst promoting a safe, sound and resilient financial system:, the circular said.

“This is a negative signal to the market because it compels banks to risk assets in an economy where you rarely find viable businesses given the macroeconomic conditions,” said Christian Orajekwe, head of securities trading at Cordros Securities in Lagos.

“This could lead to some credit creation and new jobs in the short term, but in the long term there will be concerns about the performance of those loans. It may not be sustainable.”

“The steps should not be seen as a fine because the funds moving from the cash-reserve requirements will fluctuate depending on how far a lender falls short of the loan-to-deposit thresholds, and refunded once the target is hit, Zenith Bank Chief Executive Officer Ebenezer Onyeagwu said at the CBN briefing on Thursday.

“We estimate a potential income loss of 90 billion naira for these 12 banks,” FirstRand Ltd.’s RMB Nigeria Stockbrokers said in a note. The ratios will be reviewed quarterly and comes after the regulator on Monday upped the ante, giving banks until the end of the year to get their loan-to-deposit ratios up to 65%.

Banks will continue to work on meeting the ratio after doing everything they could to increase lending, Akinsowon Dawodu, the CEO of Citigroup’s Nigerian unit, said.