In the just concluded week, the Central Bank of Nigeria (CBN) once again increased the minimum Loan to Deposit Ratio (LDR) of the Deposit
Money Banks (DMBs) to 65% (effective from December 31, 2019) from the initial 60%.
According to the regulator of the DMBs, the increase in the LDR was engendered by the appreciable growth in the level of the industry
gross credit, which increased by N829.40 billion (5.33%) to N16.40 trillion in September 26, 2019 from N15.57 trillion in May 2019, following its earlier pronouncements on the initiative to drive
real sector productivity.
The initiative was meant to encourage lending, especially to Small Medium Enterprises (SMEs), Retail customers and Mortgage customers which shall be assigned a weight of 150% each in computing the stipulated LDR while CBN will provide a framework for the classification of businesses that fall under these categories.
Accordingly, CBN reiterated that failure to meet the above minimum LDR by the specified date shall result in a levy of additional Cash Reserve Requirement (CRR) equal to 50% of the lending shortfall of the target LDR.
On Monday, September 30, 2019, the date DMBs were meant to comply with the 60% LDR, 12 banks reportedly breached the apex banks’ guidelines; hence, they were levied with additional CRR.
Of the 12 banks, Zenith Bank was levied with the largest additional regulatory contribution of N135.63 billion; followed by Citibank (N100.74 billion); United Bank of Africa (N99.68 billion); First Bank of Nigeria (N74.67 billion); Standard Chartered Bank (N30.03 billion) and Guaranty Trust Bank (N25.15 billion), amongst others.
In another development, recently released report by the Nigerian Stock Exchange (NSE) on domestic and foreign portfolio participation in equities trading for the month of August 2019 showed that equities market transactions increased when compared with July 2019.
Transactions of the domestic institutional and the foreign portfolio investors (FPIs) rose as these categories of investors chose to invest in variable income securities as at August 2019, a decision which led to the southward movement of the fixed income securities, especially treasury bills yields (364- day stop rate rose to 12.90% in August 29, 2019 from 11.18% in August 1, 2019).
Specifically, total transactions on the nation’s bourse rose to N121.99 billion in August 2019 (from N113.47 billion in July 2019); of which FPI transactions increased to N63.90 billion (from N57.78 billion) while total domestic transactions increased marinally to N58.09 billion (from N55.69 billion).
Breakdown of the FPI transactions in August 2019 showed that foreign portflio outflows fell further by 1.43% to N28.98 billion, while the foreign portfolio inflows increased further by 23.04% to N34.92 billion.
Also, domestic institutional transactions inched up by 12.96% to N34.17 billion in August 2019 from N30.25 billion printed in July 2019.
However, retail investors commitment to buy shares waned (as transactions from this group dwindled to N58.09 billion in August 2019 from N25.44 billion and N155.12 billion in July and June 2019 respectively).
Despite increased FPIs participation in the equities market, the NSE All Share Index (ASI) fell by 0.69% to 27,525.81 index points in August 31, 2019 (from 27,718.26 index points in July 2019).
Hence, most of the sectored guages plummeted in the month of August: the NSE Banking, NSE Insurance, NSE Consumer Goods and NSE Oil & Gas indicies nosedived by 3.59%, 7.68%, 4.10% and 12.16% respectively to 321.18 points, 106.85 points, 526.11 points, 198.41 points respectively.
However, NSE Industrial index rose by 1.63% to 1,091.19 points.
65.00 62.00 59.00 56.00 53.00 50.00 Nigeria’s Composite Purchasing Managers’ Index Manufacturing Composite PMI Non-Manufacturing Composite PMI
We note that the apparent pressure on the Nigerian DMBs to increase lending could have a negative impact on the banks non-performing loans in the short term.
We feel the banks ought to be given enough time to do their due dilligence before advancing creidit to customers given the infrastructural challenges faced by the real sector.