CBN says debit instructions against 12 banks not fines

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  • Godwin Emefiele, CBN Governor

The debit instructions issued against 12 banks that breached the CBN’s loan to deposit ratio requirement are not fines. What the CBN did was to increase the cash reserves of the banks. .

Contrary to what has been widely reported that the CBN has fined 12 banks the sum of N499.1 billion, the apex says it did not impose any fine on any bank for not meeting the 60% loan to deposits ratio requirement.

Isaac Okoroafor, the CBN spokesman said the debit instructions is not a fine. The amount is sterilized as cash reserve with the CBN. Currently, the cash reserve ratio requirement stands at 22.5% for banks that meet the ratio.

Analysts said that the amount is often a sterilized fund and expected to change along with movement in total deposits collection by each bank. Effectively, the affected banks’ cash reserve ratio would automatically increase with the measure.

In a circularas a way to strengthen economic growth through investment in real sector, the CBN approved that all banks should maintain a minimum Loan to Deposit Ratio (LDR) of 60 per cent by September 30. The apex bank warned that failure to meet the new minimum LDR by the specified date shall result in a levy of additional Cash Reserve Requirement equal to 50% of the lending shortfall implied by the target.

Analysts at LSintelligence told MarketForces stated that the amount would rather be added as additional cash reserve for the affected banks. “It is simple. CBN seems to have observed that moral suasion has not been working, and the need to support private sector is key to economic growth.

“Banks have always been bullish collecting deposits but bearish in lending. Thanks to juicy yield on fixed income instruments. “What the CBN is saying is that banks should give 60% (now 65%) to real sector of the economy or it would raise cash reserve requirement on failure to meet the target.

“So, if a bank is supposed to carry N100 billion loans as 60% of its total deposits collection, but its loans book is N80 billion, then CBN would impose 50% on the shortfall as additional CRR. “In other words, banks are expected to weigh the opportunity cost between lending or sterilized funds”.

The approved debit instructions initiated by CBN on affected banks show that Citibank is expected to be debited N100,743,055, 321; First Bank of Nigeria N74,668,880,480; FBNQuest Merchant Bank  N2, 697,456,144; First City Monument Bank N14, 371,064, 742 and Guaranty Trust Bank N25, 147, 933, 628.

Others are Jaiz Bank  N7, 525, 165,552; Keystone Bank N4, 162, 938, 879; Rand Merchant Bank N2, 823,177,399; Standard Chartered Bank N30,027,137,984; SunTrust Bank N1,703,205,427; United Bank for Africa N99,676,181,916 and Zenith Bank N135,629,337,625.

In a bid to encourage lending to SMEs, retail, mortgage, and consumers, the apex bank assigned a weight of 150.0% to these sectors in the computation of LDR. The CBN also disclosed plans to provide guidelines for the classification of businesses that fall under the named sector categories.

Tellimer, a London headquartered developing market financial institution had said, “We could see an outcome where banks choose a much higher CRR over rushing to achieve the loan/deposit threshold, to manage asset quality headwinds”

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