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CBN plans 70% LDR in 2020, as credit increases to N1.2 trillion

By Anthony Otaru, Yola
11 December 2019   |   3:18 am
The Central Bank of Nigeria (CBN) is planning an additional five per cent increase to the subsisting 65 per cent Loan-to-Deposit Ratio (LDR) in the banking industry, come next year.

The Central Bank of Nigeria (CBN) is planning an additional five per cent increase to the subsisting 65 per cent Loan-to-Deposit Ratio (LDR) in the banking industry, come next year.

The move, which was initiated to push banks to be innovative in credit creation, supports small businesses and weans them of the risk-free government security, is currently yielding results, as about N1.16 trillion increase has been recorded since May 2019.

CBN’s Deputy-Director, Financial Policy, and Regulation Department, Dr. Hassan Mahmood, who gave the hint, told stakeholders that, so far, the apex bank is yet to see any systemic challenge or crisis in the country’s financial system stability.

While expressing CBN’s readiness to effect the policy in 2020, he pointed out that the decision has so far helped in creating wealth and jobs, as banks’ credit portfolio has risen significantly.

Besides, the LDR policy came with an associated initiative that banks reserve the right to take funds from accounts of all borrowers across the industry, who default payments.

According to him, the measures have now placed Nigerian banks in a much better position towards supporting a stronger economic recovery and have increased gross credit by N1.16 trillion between May and October 2019.

“All we are striving at now is to join other countries to protect the global financial system as the world has become a global village,” he said.

He also stated that contrary to criticisms, the apex bank’s un-conventional monetary policy has helped to drive exchange rates to a predictable point against the dollar and other currencies.

Mahmood dropped the hint yesterday while delivering a paper titled: “State of the Nigerian Economy and Implications for the Stability of the Banking System” at the ongoing 2019 Seminar for Finance Correspondent Association of Nigeria (FICAN) in Yola, Adamawa State, organised by the Nigeria Deposit Insurance Corporation (NDIC).

He said that over 30 per cent non-performing loans go to oil and gas sector, which is challenged by uncertainty in the international price of crude oil and other global issues associated with energy.

“Now that we can see that over 30 percent loans granted by the banks go to the oil and gas sector, our financial institutions need to be more careful because if anything happens to oil prices, banks will definitely face a serious crises or be fully exposed to shocks,” he said.

Also speaking on the topic: “Emerging issues in banking regulations and supervision”, the Deputy Director, Bank Examination Department, NDIC, Abdul-hameed Aliu, said that although it is one of the duties for the corporation to oversee and monitor banks transactions, the banks have the liberty to do business with their chosen customers, including, that of lending to them.”

He noted that the corporation and CBN have created several initiatives in recent times to forestall losses from the bank’s failures and manage their activities to prevent systemic challenges.