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Banks loan-to-deposit ratio still below regulatory threshold

Joseph Oyekanmi



Banks deposit-to-loan ratio still below regulatory threshold

The average loan-to-deposit ratio of the Nigerian banking industry is still below the 65% regulatory benchmark set by the Central Bank of Nigeria (CBN).

The data obtained from CBN website by showed that the Nigerian banking industry loan-to-deposit ratio stood at 61.97% as of June 2021.

The last time the loan-to-deposit ratio was above the regulatory threshold was December 2019 when it stood at 68.46%.

Commercial lenders have been cautious of extending credit to the private sector due to the country’s economic downturn, occasioned by the impact of coronavirus which crippled global economy between March and November last year and oil price that dipped to between $29 in May 2020.

Nigeria slipped into recession in the second quarter of last year, the second time in four years, before recovering in the fourth quarter.

The economy grew 5.0% in the Q2 of 2021 as many businesses struggles due the harsh operating environment and the dollar shortage in the country, even though oil price has recovered and risen to $68.00 per barrel as of August 17.

Meanwhile, the Nigerian private sector credit increased marginally by 1.37% to N 3,263.82 trillion in June from N3,219.82 trillion in May.

The country’s private sector credit has been on a steady rise in the last 10 months, peaking in June.

Meanwhile, total deposits declined 3.02% to N34.67 trillion in December 2019 from N35.75 trillion in November, which is the available data.

However, many banks grew their deposits, according to their financial results released for the first half of the year.

Dr Boniface Chizea, Managing Consultant, BIC Consultancy Services, argued that though the apex bank was trying to compel the commercial lenders to lend to the economy, they will not throw away money.

“What Central Bank is trying to do is to prevent the banks from taking refuge in fixed income securities, which in itself is not very attractive now,” he said.

He cautioned the apex bank not to compel them give credits that will amount to throwing money away.

Johnson Chukwu, Managing Director, Cowry Assets Management, explained that because the economy is undergoing crisis, there are no good credits which are seeking for funding.

“So, if the banks have to lend, they have to lend to some prime consumers. The banks need to consider if they have enough request to be able to meet that threshold.”

He also noted that banks have a lot of their funds warehoused in the Central Bank in form of Cash Reserve Ratio (CRR), this puts a lot of pressure on them in terms of lending.

“Banks have to balance between liquidity and deposit-to-lending ratios. These factors to be considered before meeting this requirement,” he added.


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