Following the Central Bank of Nigeria (CBN) regulations, analysts at Vetiva Capital Management Limited have projected 8.6 per cent growth banks’ lending in 2019.
The projection, which was announced in the company’s outlook for the second half of the year (H2’19), represents 4.8 percentage points increase from the 3.8 per cent growth earlier projected by the company at the beginning of the year.
The upgrade according to the company is prompted by the recent measures introduced by the Central Bank of Nigeria (CBN) to compel banks to increase lending to the economy. Recently, the CBN introduced a loan-to-deposit ratio (LDR) of 60 per cent for banks, which imply that banks should give 60 percent of their deposit as loans.
In addition to this, the apex bank, in a bid to encourage banks to lend their idle cash instead of placing it is deposit in its Standing Deposit Facility (SDF), reduced the maximum remunerable limit for banks’ deposit placement via the SDF to N2 billion from N7 billion.
Noting that it will be difficult for banks to comply with the 60 per cent LDR, analysts at Vetiva Capital, however, projected that the CBN will come up with additional regulation to mitigate the impact of the lending measures on banks’ performance.
They said: “We see little scope for fiscal reform in H2’19, with only the power sector proving to be the most likely; this is due to the Federal Government’s lag in setting up the new Federal Executive Council and an economic team, rather the introduction of new regulation by the CBN on Deposit Money Banks (DMBs) will prove to be the main driver for credit growth in 2019.
“The CBN recently issued a directive, mandating DMBs to attain a loan to deposit ratio (LDR) of 60 percent by September 30, 2019, with a loan book weighting of 150 per cent on priority sectors – SMEs, retail, mortgage, and consumer lending.
The penalty on DMBs for non-compliance to the new minimum LDR is a cash reserve requirement levy of 50 per cent on the lending shortfall of the target LDR. “Consequently, DMBs under our coverage will need to grow loans by 11 percent or N1.1 trillion to achieve the 60 per cent LDR minimum.
This will be difficult to achieve in our view, due to the weighting allocation directive for priority sectors.
We, however, expect to see additional regulatory adjustments/additions to account for the potential impact on DMB Non Performing Loans (NPLs), capital adequacy and profitability. Accordingly, we have revised our Full Year 2019 outlook for loan growth to 8.6 per cent from 3.8 per cent previously.”