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Home Business News

Why CBN may sanction some banks over new lending policy

Damilare Famuyiwa by Damilare Famuyiwa
July 15, 2019
in Business News, Politics
Nigeria’s Accountant-General Says Treasury Single Account’s September 15 Deadline Is Realistic
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The Central Bank of Nigeria (CBN) may sanction not less than seven banks, should they fail to comply with its new lending policy.

The banks which may be intensifying efforts to avoid being sanctioned by the apex bank are Guaranty Trust Bank, Zenith Bank, First Bank of Nigeria (FBN), Ecobank Transnational Incorporated, Stanbic IBTC Holdings, Union Bank of Nigeria Plc, and United Bank for Africa Plc (UBA).

Godwin Emefiele, CBN Governor,
CBN Governor, Godwin Emefiele

Why the banks may be sanctioned: The affected banks’ financial report for 2019 Q1, shows that the banks recorded 51.6% Loan to Deposit Ratio (LDR), which represents 8.4% shortfall of the LDR target.

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It was however gathered that the banks’ deposit stood at N20.12 trillion during the period under review, as they disbursed N10.4 trillion loans to their customers. Under the new policy, they would be required to disburse N12.1trillion loans.

Consequence: In view of the new policy that will be implemented in about two months’ time, the seven banks would have no choice but to increase their loan position with as much as N1.7 trillion, which represents the LDR shortfall recorded by the banks as at the end of March 2019.

Should the banks fail to create a window for the outflow of the credit facilities as at the given period, CBN may enforce a sanction of locking up half of the amount, which is about N844 billion.

(READ ALSO: Bank CEOs declare war on debtors over N8.16 trillion bad loans)

Prior to this development, the apex bank had made known that its directive for DMBs to lend out a minimum of 60% of their deposits to the country’s real sector, will take effect from Monday, September 30, 2019.

Understanding the LDR: LDR is an instrument deployed to assess a bank’s liquidity by comparing its total loans to its total deposits for the same period. In this process, if the ration appears too high, it means that the bank may not have enough liquidity to cover any unforeseen fund requirements, especially if the loan repayments fall short of schedule. Conversely, if the ratio is too low, the bank may not be earning as much as it can from the deposits it had taken at a cost.


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Tags: CBNEcobank Transnational IncorporatedFirst Bank of Nigeria (FBN)GTCO HoldingsStanbic IBTC HoldingsUnion Bank of Nigeria PlcUnited Bank for Africa PlcZenith Bank News
Damilare Famuyiwa

Damilare Famuyiwa

Famuyiwa Damilare is a trained journalist. He holds a Higher National Diploma (HND) in Mass Communication at the prestigious Nigerian Institute of Journalism (NIJ). Damilare is an innovative and transformational leader with broad-based expertise in journalism and media practice at large. He has explored his proven ability in the areas of reporting, curating and generating contents, creatively establishing social media engagements, and mobile editing of videos. It is safe to say he’s a multimedia journalist.

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