‘65% loan to deposit ratio a good policy to assist real sector’
24 October 2019 |
3:41 am
Following the directive by the Central Bank of Nigeria (CBN), to raise the Loan to Deposit Ratio (LDR) of banks to 65 per cent to assist the real sector, financial directors have described the policy as a welcome development.
[FILES] Loan applications. Photo: PIXABAY
Following the directive by the Central Bank of Nigeria (CBN), to raise the Loan to Deposit Ratio (LDR) of banks to 65 per cent to assist the real sector, financial directors have described the policy as a welcome development.
They submitted that it would allow banks to channel their energies, and also make credit accessible to the sectors that actually need the funds.
The apex bank gave its regulated entities December 31 deadline, to meet its new requirement to encourage SMEs, retail mortgages and consumer lending.
Speaking at the 22nd yearly general meeting of the Bank Directors’ Association of Nigeria (BDAN), on Tuesday, Secretary to the Council, Dr Jude Monye, who noted that the banking sector was ready at all time to assist the real sector of the economy, bemoaned some structural and fundamental factors in the way the economy operates.
According to Monye, without credit, the economy cannot be restored. “The credit has to be available, and CBN is playing that role to ensure credit is available to all the sectors and people that need this credit.
“In the last quarter, you could see that there was increased credit in the market; you could see from statistics how much the banks have lent to the real sector. It is the right policy in the right direction,” he said.
Asked if he sees an increase in non-performing loans (NPLs) as credit increases, Monye, who is also an Executive Director, Heritage Bank, said: “There is nothing like when you increase credit, NPL increases. Yes, it is bound to happen, but in what proportion? Once banks can stick to their best practices, risk criteria, and acceptance criteria before you give a loan and profiling the customers, eventually the loans will perform.
“The monetary activities and the risk acceptance criteria that banks carry out before you grant a loan are the basic things that the banks should do.
“The fact that they have also prescribed the minimum loan-to-deposit risk for lending rate does not mean that banks should be reckless. They are saying be professional, use your credit policy, then implement your risk assessment criteria for onboarding clients, especially the borrowing customers.”
Noting that the banking sector is the very active sector of the Nigerian economy, President of BDAN, Osaretin Demuren, said directors must be equipped and well knowledgeable in the practice of banking.
In her opening remark, Demuren said the Association is entering into a collaboration with international expertise to equip their members, and also to make BDAN visible.
“BDAN is there to bridge the gap by working with other international institutes that provide training and capacity building. The training will also focus on the training that bank directors and their workers require,” she said.
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