By Gift Olivia Samuel, The Sight News
Following the directive of the Central Bank of Nigeria (CBN), urging Deposit Money Banks to increase their Loan-to-Deposit Ratio (LDR) by 65 per cent, the banks have expressed commitment to meet the December 2019 target.
Loan-to-Deposit Ratio(LDR) is the percentage provision the bank is willing to give as loans out of its total cash deposit with the CBN and the new directive, is coming three months after the Central Bank announced a similar raise from 55 per cent to 60 per cent.
Briefing Journalists after the Bankers’ Committee Meeting on Thursday, the Director, Banking Supervision CBN, Mr. Ahmed Abdullahi said that the Committee was glad to have witnessed an increase in the flow of credit to the real sector of the economy, following the CBN’s policy directive.
He noted that banks responded to this policy statement of the CBN because the real sector has to be supported to ensure sustainable growth and development of the economy, adding that the banks have endorsed the policy because it is the way to go.
Also speaking, the Managing Director, Zenith Bank PLC, Ebenezer Onyeagwu, said the LDR directive has helped to boost the growth of credit in the system, as it has achieved a growth of over N800 billion, demonstrating the fact that the banks are in tandem with CBN to implement the initiative.
He further stated that the bankers are committed to achieve the target set for December at 65 percent, adding that the whole essence is to grow the economy, improve intermediation process, and create a multiplier effect that will boost growth.
According to him, “It is a policy in the right direction and once the economy is growing, everybody stands to benefit. We believe that the CBN should be supported and the banks are all united in committing to this initiative from CBN”.
For his part, the CEO Stanbic IBTC, Demola Shogunle, pointed out that the positive response of the banking industry to the policy pronouncement of the CBN in terms of making credit available to the generality of the economy within a period of three months, should not be taken for granted.
He added that banks within that period were able to grow the aggregate credit by almost 5.5 %, which he stressed was very significant.
“We will start to see the impact of what has transpired soon. The whole house was in agreement that we are moving in the right direction and that the 65 percent milestone is good for the economy and banking system. We are all geared up to go and deliver on a Loan-to-Deposit Ratio of 65% between now and the end of December,” he emphasized.
Speaking on ways to limit risks, the ED Risk, Standard Chartered Bank, Mobola Faloye, stated that there are vulnerable sectors that the banks will be lending to and so, they will try to mitigate the risk by having a credit-cross default clause that allows the bank to set off the obligations of the defaulting party against any other monies they have in the industry, adding that it is a good support from the CBN for the banking community.
She stressed on the need for the banks to include the default clause in their loan agreement, noting that the CBN has ensured that the clause will be enforced when the need arises.
Furthermore, the Managing Director, Citibank Nigeria Limited, Dawodu Akin, on the issue of LDR compliance, reiterated that the industry has cause to be very satisfied with the result of the LDR compliance in terms of increasing lending by about N800 billion which he said, is no mean feat in an 11 months period .
He noted that the feat was the effort of the collaboration of all the banks with the regulator, in terms of buying into the vision to increase corporate credit and retail credit in the economy, adding that all the banks were aligned in the objective and did all they could to increase the ratio.
It is pertinent to note that the policy is expected to lead to increased access to credit and affordability of credit, as customers at both corporate and individual levels will be able to borrow more from banks at a cheaper interest rate than they would have done before now.
Recall that the banking sector regulator on Monday directed all deposit money banks to raise their loans-to-deposit ratio (LDR) from 60 per cent to 65. The directive was contained in a letter to all banks signed by Bello Hassan on behalf of the Director Banking Supervision of CBN.