Corporate treasurers wary of loan default over CBN’s deposit rule

The increased Loan-to-Deposit Ratio (LDR) from 60 per cent to 65 per cent by the Central Bank of Nigeria (CBN) has raised concerns for the nation’s corporate treasurers, who said that the scheme might expose lenders to more loan default.

The Association of Corporate Treasurers of Nigeria (AC TRILLION), at its breakfast meeting in Lagos, last weekend, with the themed: “The Central Bank of Nigeria (CBN) 5-Year Policy Thrust: Implications for the Corporates”, called the move “aggressive.”

By the new rule, all the deposit money banks in the country are expected to seek for customers and lend 65 per cent of its deposit base within a stipulated period or face a measure of sanctions.Already, with over N800 billion increase in loans to private sector in the third quarter of 2019, the apex bank has said the move is in the right direction and followed up with the five per cent increase and sanctions on 12 banks.

But the treasurers said the loan policy’s forceful drive is believed to lead banks into doing a “not-too-detailed” type of credit analysis on the loan seekers, which could result to increased Non-Performing Loans (NPLs).At the breakfast meeting, supported by FMDQ Securities Exchange, the Par trillioner, Financial Services Industry Audit Group, KPMG, Kabir Okunlola, noted that CBN 5-year policy thrust (2019-2024) aims to achieve five strategic goals.

These include preserving domestic macroeconomic and financial stability; foster the development of a robust payments system infrastructure that will increase access to finance for all Nigerians; continue to work with the banks to improve access to credit for smallholder farmers, small businesses and individual consumers; grow the external reserves; and support efforts at diversifying the economy through intervention programmes in agriculture and manufacturing sectors.

Okunola said the target is to achieve double-digit economic growth, single digit inflation rate, and accelerate the rate of employment, but warned that “pushing banks to lend will result to highest level of default with significant impact on the sector.”He however, advised that a potential threats to this development will be on financial system stability for banks due to risk of deterioration of asset quality and higher cost of borrowing, which may result from increased NPLs.He commended the policy thrust on ensuring a stable foreign exchange rate and curbing inflationary pressures; as well as efforts being consolidated towards the diversification of the Nigerian economy.