The Central Bank of Nigeria (CBN) has raised the minimum loan-to-deposit ratio for commercial lenders to 65 percent from 60 percent to boost economic growth and job creation in Africa's biggest economy.
The new directive comes after some lenders failed to meet an earlier deadline to increase lending, Ahmad Abdullahi, director of banking supervision, said on Monday.
The steps are among a raft of regulations aimed at forcing banks to boost credit -- mainly to farmers, small- and medium-sized businesses and consumers -- as President Muhammadu Buhari’s administration seeks to reignite economic growth.
“The impact on asset quality will be very apparent when the economy experiences a change in the business cycle,” Omotola Abimbola, a macro analyst at Chapel Hill Denham Securities Ltd. in Lagos. said by phone. Banks need to expand credit in a “sustainable manner, not in a rush, which will be the concern of some of the banks.”
The majority of the country's biggest banks were reported to have fallen short of the regulatory 60 percent threshold initially set in July.
Nigerian gross credit increased by 5.3 percent to 16.4 trillion naira by the end of September from May 31, the central bank said.
Only two out of the nation’s six biggest banks met the requirements as of June 30. The firms had lost some of their appetite to extend credit after bad loans surged in the wake of a crash in crude prices, but are now starting to make headway into consumer lending amid the constant pressure from regulators.
While the measure is helping to spur the beginnings of an increase in lending, it also comes at a time when banks are seeing their net-interest margins come under pressure because of lower yields on government securities, Abimbola said.
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