Anxiety over rising banks’ borrowing from CBN

Adebayo Obajemu

Investigations by Business Hallmark indicated that banks’ loans to customers soared by more than N1 trillion during the first three months of 2020.

Nigerian banks’ loans to customers jumped to N18.9 trillion in Q1 2020, up from N17.4 trillion in FY 2019. Checks by this newspaper showed a 5.74% increase during the first quarter of the year. In other words, banks’ loans increased by more than N1 trillion during the first three months of the year.

The Details: Zenith Bank Plc recorded the biggest loans to customers in Q1 2020, having disbursed as much as N275.2 billion worth of loans during the period. In total, the tier-1 bank’s loans to customers stood at N2.6 trillion as of March 31st, 2020.

First Bank came in second in terms of biggest loan disbursement in Q1 2020. There was a 10.74% increase (or N198.9 billion addition in loans), which saw the tier-1 bank’s total loans to customers jumping to more than N2 trillion, up from N1.8 trillion as of December 2019.

United Bank for Africa Plc came in third with N195.2 billion, followed by Guaranty Trust Bank Plc with N121.3 billion. Figures for the rest of the banks can be seen in the table below.

Recall that the Central Bank of Nigeria (CBN) had in July 2019 increased banks’ Loan to Deposit Ratio (LDR) to 60%, up from 58.5%. Three months afterwards, the LDR was again increased to 65%, even as speculations were rife that it would further be increased to 70%. The apex bank later issued a circular announcing that LDR would be retained at 65%which is the current level.

The main reason the CBN increased the LDR in the first place was to facilitate the provision of credit facilities to the real sector of the economy. The CBN incentives assigned a weight of 150% in respect of lending to SMEs, retail, mortgage, and consumer lending. Lenders are required to fully comply or risk attracting a levy of additional Cash Reserves Requirements of 50% of the lending shortfall of the target LDR.

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