Stemming from the regulations of the Central Bank of Nigeria (CBN), 8.6 percent growth of bank lending has been projected by analysts at Vetiva Capital Management Limited for the year 2019.
The news of the projection was announced in the company’s outlook for the second half of the year (H2’19). The figure (8.6 percent) represents 4.8 percentage points increase from the 3.8 percent growth earlier projected by the company at the beginning of the year.
According to Vetiva Capital Management Limited, the upgrade was due to the recent measures initiated by the Central Bank of Nigeria (CBN) to propel banks to lend more to the economy.
Recall that in a letter written by CBN to all banks on July 4, it mandated Deposit Money Banks, DMBs, to give out a minimum of 60 percent of their deposits as loans with effect from September 2019, instead of placing it as Standing Deposit Facility (SDF).
To make this easier for the DMBs, CBN reduced the maximum remunerable limit for banks’ deposit placement via the SDF to N2 billion from N7 billion.
In allaying the difficulties DMBs will face in adhering to the 60 percent loan to deposit ratio, analysts at Vetiva Capital projected that the CBN will implement additional regulation on the effect of lending measured on each banks’ achievement.
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 than 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 analysts disclosed that 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 percent on priority sectors – SMEs, retail, mortgage, and consumer lending.
Analysts at Vetiva also warn that the penalty on DMBs for non-compliance to the new minimum LDR is a cash reserve requirement levy of 50 percent on the lending shortfall of the target LDR.
Referring to the DMBs under their coverage, the analysts said that they will need to grow loans by 11 percent or N1.1 trillion to achieve the 60 percent 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 percent from 3.8 percent previously.” Vetiva Analysts added.