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CBN to increase LDR to 70%

The Central Bank of Nigeria (@cenbank) is reportedly set to increase banks’ Loan to Deposit Ratio (LDR) to 70%, from the current 65% recently implemented by the bank.

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CBN Vs NESG: Waving the white flag for the benefit of Nigerians, Exchange Rate Unification: CBN devalues official rate to N380/$1, Nigerian banks have written off N1.9 trillion impaired loans in past 4 years, CBN sandbox operations, Stirling Trust Company Limited

The Central Bank of Nigeria (CBN) is reportedly set to increase banks’ Loan to Deposit Ratio (LDR) to 70% by 2020.

According to a report published on Vanguard, the disclosure was made by CBN Director, Banking Supervision, Mr Hassan Belllo while speaking at the 2019 workshop for Finance Correspondents and Business Editors, organised by the Nigeria Deposit Insurance Corporation (NDIC) in Yola, Adamawa State.

According to Bello, the introduction of the LDR has enhanced credit into the economy. Hence, the CBN would move the LDR to 70%.

Recall that in October, the CBN issued a fresh circular mandating commercial banks operating in the country to lend out up to 65% of their customer deposits from the initial 60%.

The CBN forcing banks to lend: In an earlier article published on Nairametrics in July, the CBN, through a circular, mandated commercial banks operating in the country to lend out up to 60% of their customer deposits.

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  • Three months later, the CBN issued another circular addressed to all banks, raising the LDR target for all Deposit Money Banks (DMBs) from the initial 60% to 65%.
  • According to the information contained in the circular, the major reason for the newly revised LDR was the noticeable “growth in the level of the industry gross credit”.
  • Following this, the CBN set December 31st as the ultimatum for banks to comply with the new 65% LDR.

Already, criticisms have trailed the current 65% LDR ratio, as experts have argued that it might increase the level of non-performing loans in the economy.

Speaking recently, the Chief Executive Officer, Financial Derivatives Company Limited (FDC), Mr Bismarck Rewane, stated that lenders would “struggle” in their bid to comply with the directive.

Rewane stated, “The banks have not opened the credit spigot and borrowers cannot wait to draw down the loans on the one hand.

“On the other hand, investors and savers are looking desperately for alternative asset classes. This is reducing the marginal propensity to save whilst increasing the marginal propensity to consume and import.

“The prognosis is that either we see a surge in credit and growth or we witness outflows from the system. In all cases, the financial sector is in for an effervescent year-end for 2019 and an interesting 2020.”

Speaking to Nairametrics, Financial expert and CEO, AfriSwiss Capital Assets Management Limited, Kalu Aja, stated, “The real headwind in the economy for banks is the CBN’s push to get banks to lend to the real sector, this may push the banking sectors to create risk assets but expose loan portfolio to more provisioning.”

IMF cautions CBN: Similarly, the International Monetary Fund (IMF) has disclosed that the balance sheets of banks would be weak due to the directive from the Central Bank of Nigeria that deposit money banks should achieve a 65% LDR.

The global firm argued in its Regional Economic Outlook for sub-Saharan Africa report that the development would significantly weaken banks’ balance sheets and lower the cost of funds.

Despite the IMF’s warning, the Central Bank has indicated it has no plan to reduce the LDR, but may rather increase it. According to the CBN governor, Godwin Emefiele, while reading the communique of the last Monetary Policy Committee meeting, the 65% LDR policy action has yielded positive actions.

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“The MPC noted with pleasure, the positive outcome of actions already taken by the Bank. These actions include the current policy on loan-to-deposit ratio, which has resulted in loans and advances rising by over N1.1trillion between June to October 2019.

“It further noted that these actions have assisted in boosting credit to the agricultural and manufacturing sectors, hence, the positive outcome on the GDP. The MPC is hopeful that the LDR initiative must be sustained as interest rates being paid by borrowers have so far dropped by up to 400 basis points between June and October 2019. These have happened with the corresponding decline in NPLs to 6.5% at the end of October 2019.”

While the CBN is yet to release an official statement to this effect, this means the reported plan by the apex bank to increase the LDR to 70% is coming as the deadline for the recent increase approaches.

Samuel is an Analyst with over 5 years experience. Connect with him via his twitter handle

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Companies

GMD, 2 Executive Directors buy 5 million additional units of Zenith Bank Plc shares

In three separate transactions, major stakeholders purchased 5 million units of Zenith Bank’s shares.

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Executive Director buys 2 million additional Units of Zenith Bank Plc Shares.

Zenith Bank Plc, Group Managing Director, Mr Ebenezer Onyeagwu, and two Executive Directors, Messrs. Dennis Olisa and Ahmed Umar Shuaib, have purchased an aggregate of 5 million units of additional Zenith Bank Plc shares.

This was disclosed by the bank, in a notification sent to the Nigerian Stock Exchange, and seen by Nairametrics.

According to the notification, signed by the Company’s secretary, Michael Osilama Otu, the purchase was made in the bourse, over three transactions on the 16th and 17th of September, 2020.

As part of the regulatory requirements, the disclosure must be reported to the Nigerian Stock Exchange, especially when the trade is executed by a major shareholder or director of a listed firm.

Breakdown of the deal

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According to the details of the deal verified by Nairametrics, Mr. Dennis Olisa pulled the highest deal as he purchased 2,000,000 additional units of Zenith Bank Plc’s shares at an average of N17.18 per unit, totaling N34.36 million. Mr. Ahmed Umar Shuaib also purchased 2,000,000 additional units of the Bank’s share, at an average price of N16.99 worth N33.98 million. Completing the trio was, Mr. Ebenezer Onyeagwu who purchased 1,000,000 additional units at an average of N17.05 worth N17.05 million.

This major purchase boosted the total number of trade deals (Volume) posted by the Bank in the NSE market, as the deals contributed about 11.61% of the Bank’s total deals between 16th and 17th of September, 2020.

(READ MORE: Zenith Bank rewards customers with massive giveaways in the “Zenith Beta Life” weekly promo)

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What this means

Based on the recently released H1 2020 Financial Results of Zenith Bank, Mr. Ebenezer Onyeagwu had 45,500,000 direct shares as of June 30, 2020. Mr. Ahmed Umar Shuaib had 7,577,343 direct shares, while Mr. Dennis Olisa had 7,122,316 direct shares. All these remained unchanged from their reported shares in H1 2019.

With the addition of 1,000,000 shares, Mr. Ebenezer Onyeagwu’s stake increased to 46,500,000, indicating an increase of 2.19%. Mr. Ahmed Shuaib’s shares also leaped by 26.39% to 9,577,343, while Mr. Deniss Olisa’s shares increased by 28.08% to 9,122,316 direct shares.

This deal may signify that the Bank’s insiders expect an increase in share price. It is a positive signal to outsiders, coming from top insiders who are abreast with latest information on the Bank’s prospects.

This can play a vital role in stimulating a bullish trend. Zenith Bank’s share price is currently trading at N16.70 on the NSE.

Conclusion

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Regardless of the impact of the pandemic on the income and revenue of banks, Zenith bank still remained one of the high-flying financial organizations in Nigeria. For example, the tier-1 bank’s gross earnings grew by 4.37% from N331.5 billion in H1 2019 to N346.1 billion in H1, 2020. Its Profit After Tax increased by 16.81% from N111.7 billion to N114.1 billion within the period under review. The aforementioned factors might have been the reason behind the recent bullish trend for its stock.

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Business

FG apologizes, says Self-Certification directive is not for everyone

The Federal Government has made clarifications concerning earlier announced Self-Certification Forms.

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FG apologizes, says Self-Certification directive is not for everyone, FIRS introduces stamp duty on house rent and C of O transactions

The Nigerian government has backtracked on its earlier issued guidelines on the new banking Self-Certification Forms, saying the notice does not apply to everyone.

On Thursday, the Nigerian government ordered all persons holding accounts across financial institutions and insurance firms, to complete and submit self-certification forms to their respective financial institutions.

Explore the Nairametrics Research Website for Economic and Financial Data

It stated, “This is to notify the general public that all account holders in Financial Institutions (Banks, Insurance Companies, etc.) are required to obtain, complete, and submit Self – Certification Forms to their respective Financial Institutions. Persons holding accounts in different financial institutions are required to complete & submit the form to each one of the institutions. The forms are required by the relevant financial institutions to carry out due diligence procedures, in line with the Income Tax Regulations 2019.”

However, on Friday morning, after receiving expected backlash on social media, FG attempted a clarification stating, “We apologize for the misleading tweets (now deleted) that went up yesterday, regarding the completion of self-certification forms by Reportable Persons,” and that, “the FIRS will clarify Nigerians on the objectives of the directive.”

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READ: CBN automates trading system, introduces electronic form to facilitate exports 

The FIRS earlier today made a statement, that the guidelines are only for non-residents, and people paying tax in more than one country.

READ: Tax implication of IFRS adoption in Nigeria: key issues

“The Self Certification Form is basically to be administered on Reportable persons, holding accounts in Financial institutions, that are regarded as “Reportable Financial Institutions” under the CRS. Reportable persons are often non-residents and other persons, who have residence for tax purposes in more than one jurisdiction or Country.”

“The information that indicates an account holder is a resident for tax purposes in more than one jurisdiction, is expected to be available to Financial Institutions during account opening processes, for the KYC and AML purpose.” the statement read.

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Business

This is a copy of the Self-Certification form govt. wants targeted account holders to fill

The FIRS posted a copy of the self-certification form on its website.

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This is a copy of the Self-Certification form govt. wants targeted account holders to fill, President Muhammadu Buhari's full speech at China-Africa Extraordinary Summit on June 17, 2020

The Nigerian government on Thursday tweeted an order to all persons holding accounts across financial institutions and insurance firms to complete and submit Self-certification forms.

This was announced by the Federal Government in a social media statement on Thursday. The FG warned that failure to comply may include a monetary penalty or inability to operate the account.

READ: FG to save N1 trillion annually from petrol subsidy removal

The Government also urged Nigerians to comply with the requirements and execute all forms needs, if not sanctions may be introduced in the forms of monetary penalty or inability to operate the account.

The government however deleted the tweet on Friday, explaining that it does not apply to everybody, contrary to what it had earlier tweeted. The FIRS claims those affected are non-residents.

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READ: Despite billions on agriculture, food inflation up by 108% since 2015

Nairametrics has seen a copy of the “Self-Certification Forms” detailing the information that account holders are meant to share. See below;

NB: This article has been updated to reflect new information regarding who the accounts holders (reportable persons) are.

READ: UK to impose visa ban, seize assets of Nigerians for electoral offences

Download (PDF, 839KB)

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