Banks in Nigeria are expected to maintain a loan to deposit ratio of 60 per cent starting in September. The directive by the nation’s Central Bank is meant to increase lending to small and medium-sized businesses and individual borrowers.
The banks decreased their lending to small businesses and individual consumers between 2016 and 2018 following a decline in economic growth. Instead, the institutions put their funds in less risky government securities.
Nigerian banks likely to be affected by the new law include Zenith Bank, United Bank for Africa, Guaranty Trust Bank, and Stanbic due to their low loan to deposit ratios.
Banks which do not meet the set standard by September will pay a levy in form of cash reserve requirement equal to 50 percent of the lending shortfall.
The new law is expected to increase the number of non-performing loans in the Nigerian banking sector. Analysts predict that the price of banking stocks will decrease as investors price in the negative effects of increased lending.
A suitable alternative to the lending problem would be the government reduces the budget deficit according to Charles Robertson, the global chief economist at Renaissance Capital, as noted on the African report.
