In order to avoid toxic assets and Non-performing Loans, the Lagos Chamber of Commerce and Industry (LCCI) has warned Deposit Money Banks (DMBs) against lending to unbankable projects.
The President of LCCI, Babatunde Ruwase disclosed that even though some of the financial institutions were boasting that they had already surpassed the 60% target given to them by the Central Bank of Nigeria (CBN) on Loan to Deposit Ratio (LDR), it is important for them to lend to support projects that are bankable.
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Ruwase also charged the economy managers to increase access to intervention funds for businesses to thrive in the country.
“We have to be careful so that we do not fund un-bankable projects. There are no cheap funds anywhere knowing that they must safeguard the interest of depositors. What government can do is to do more in areas of intervention funds to banks for on-lending to support sectors that are critical while also making the conditions for borrowing these funds relaxed.
“The banks are looking for more than the 1% they get during the lifespan of the fund borrowed but if we are not careful about this, we might start to have situations where funds are created as well as liabilities for projects that are not bankable and at the end of the day, we have toxic assets.”
As reported on Nairametrics, the CBN directed banks to lend out a specified minimum of their deposits to improve lending to the real sector of the Nigerian economy.
Consequently, DMBs are required to maintain a minimum of 60% LDR by September 30, 2019. This ratio, the Central Bank said shall be subject to quarterly review.
Why the directive matters: With an average LDR around 40%, it would not be erroneous to assert that Nigerian banks are some of the most reluctant lenders in major emerging markets. According to a data compiled by Bloomberg, the average ratio across Africa is 78%. South Africa tops the chart with 90% while Kenya is at 76%.
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