Nigeria orders banks to increase loans to spur an anemic economy

Nigeria orders banks to increase loans to spur an anemic economy
Source: Bloomberg
Date: 04-07-2019 Time: 09:07:45:am
Central Bank of Nigeria building

Nigeria’s central bank set a minimum loan-to-deposit ratio for commercial banks as it seeks to spur lending to stimulate the economy.

All lenders will be required to have a ratio of at least 60% by the end of September, the Central Bank of Nigeria said in a letter to banks, dated July 3, and seen by Bloomberg.

Banks that fail to meet the threshold will have their cash reserve requirements, or the amount of money they have to keep at the central bank, increased, according to the circular.

The decision was taken “to ramp up growth of the Nigerian economy through investment in the real sector,” Ahmad Abdullahi, director of banking supervision, said in the letter. “To encourage lending to small businesses and consumers and more mortgages, these sectors shall be assigned a weight of 150% in computing the LDR.”

Isaac Okorafor, a spokesman for the central bank, confirmed the authenticity of the circular.

Bond Limits

The order comes after Governor Godwin Emefiele urged banks to boost lending or have access to risk-free assets restricted. Speaking at the most recent Monetary Policy Committee meeting in May, he said he would “provide a mechanism” to limit banks’ purchases of government securities.

Lenders have long piled into naira bonds, which yield 14.3% on average, one of the highest rates globally. Lenders argue that with inflation running at more than 11%, extending more credit to businesses and individuals carries high risks and could endanger the financial system.

Nigeria’s economy, still recovering from the 2014 crash in oil prices, grew 2% year-on-year in the first quarter.