Recently, reports emerged that the Central Bank of Nigeria (CBN) is planning to review Nigerian banks minimum Loan-to-Deposit Ratio (LDR) upward from the current 65.0% to 70.0% in 2020. This is amid the growth in banks credit to the private sector that trail(ed) the current (65.0%) and previous (60.0%) pronouncements. Notably, real sectors such as; Manufacturing, Commerce, ICT, Construction, Agriculture, and Mining & Quarrying sectors have been the biggest beneficiary of the renewed credit drive.
Making the CBN’s case more compelling, is the sustained moderation in Non-Performing Loans (NPLs), to its lowest since Nigeria entered recession in Q2-16. Notably, the Monetary Policy Committee (MPC), at its last meeting in 2019, attributed the improvement in NPLs to the CBN’s Global Standing Instruction (GSI) initiative which had addressed the predatory impact of serial borrowers in the banking system. Also, the improvement in the overall economic output recorded in Q3-19 (GDP: +2.28%) and the sustained expansion in manufacturing as well as non-manufacturing Purchasing Managers’ Index (PMI) over the period, typified some of the impacts of banks’ lending to the real economy.
However, while we acknowledge the monetary authorities’ effort to boost real sector growth, we highlight the need for the fiscal authorities to complement these efforts by creating an enabling environment for businesses to thrive. Accordingly, we believe the CBN should delay increasing the LDR further, until when the fiscal authorities commit to implementing the needed reforms.
United Capital Research