Business
CBN’s Directive May Weaken Banks’ Balance Sheets -IMF
The International Monetary Fund (IMF) has said the directive from the Central Bank of Nigeria (CBN) that deposit money banks should achieve a minimum loan-to-deposit ratio could weaken their balance sheets.
The Tide recalls that the CBN, in a circular dated July 3, 2019, mandated all DMBs to maintain a minimum loan-to-deposit ratio of 60 per cent by September 30, 2019 in a bid to improve lending to the real sector of the nation’s economy.
The minimum LDR was in October reviewed to 65 per cent, which is to be attained by December 31, 2019.
The apex bank said failure to meet the minimum LDR would result in a levy of additional cash reserve requirement equal to 50 per cent of the lending shortfall of the target LDR.
The CRR is the share of a bank’s total customer deposit that must be kept with the CBN in the form of liquid cash. It is currently at 22.5 per cent.
The IMF however, said in its latest Regional Economic Outlook for sub-Saharan Africa. “Nigeria introduced a requirement for banks to achieve a minimum loan-to-deposit ratio, which could significantly weaken banks’ balance sheets and lower the cost of funds (as banks could quote low rates to curtail new deposits),”
The Mission Chief and Senior Resident Representative for Nigeria, IMF, Amine Mati, at the pubic presentation of the report in Lagos said the fund was of the view that the regulation might need to be revisited in terms of the potential pressure on non-performing loans.
According to the report, Nigeria is projected to grow at 2.5 per cent in 2020, up from 2.3 per cent in 2019, driven by both oil and non-oil sectors.
“Medium-term growth is projected at slightly higher than 2.5 per cent, implying no progress in per capita growth. This low growth is driven by insufficient policy adjustment, a large infrastructure gap, low private investment, and banking sector vulnerabilities,” the Washington-based fund said.
It said since 2016, revenue in sub-Saharan Africa had risen by only 0.2 per cent of the GDP a year on average, although countries had room to mobilise, on average, between three per cent and five per cent of the GDP in revenue.
The IMF noted that Nigeria continued to have low tax rates, narrow tax bases and broad exemptions.
It said, “In several countries, tax administrative capacities remain weak, and governance is a concern. Also, the informal sector is large in many countries (such as Angola, Central African Republic, Chad, Guinea and Nigeria), resulting in low tax compliance.
“Mobilising more domestic revenue requires improving tax administration (such as assigning tax identification numbers for commercial importers, improving land registries, and strengthening tax audit functions, customs administration, and compliance management of large taxpayers) and reforms to broaden revenue bases, including through fewer exemptions.”
The facility will be disbursed through participating Microfinance Institutions (MFIs), which will in turn extend the loans to their customers, particularly SMEs, as they directly interface with businesses at the grassroots level.
The Executive Director of COMCIN, Mr. Micheal Ogbaa who represented the Chairman, Dr. Iredele Oyedele (FCA, FCCA), said the initiative is designed to strengthen micro-lending institutions and expand access to finance for grassroots entrepreneurs, particularly women and youths in the informal sector.
Ogbaa explained that COMCIN does not lend directly to individuals but works through its network of microfinance and cooperative institutions, which in turn provide loans to end users.
“We came together to advocate for the microfinance ecosystem. Commercial banks often exclude people at the grassroots, but our members are positioned to reach them. This facility will empower them to do more,” he said.
He noted that the loan scheme offers low interest rates and flexible repayment plans, making it more accessible to small business owners.
According to him, about 90 percent of beneficiaries are expected to be women, who play a key role in sustaining families and driving economic activities at the local level.
“Our focus is on traders, service providers, and players in the informal sector. These are the real movers of the economy. By supporting them, we are strengthening families and contributing to national development,” he added.
Ogbaa disclosed that eligible SMEs with proven integrity and business track records could access up to N5 million each through participating micro-lending institutions. The rollout has commenced in Lagos and will extend to Abuja, Enugu, and other regions, including the South-West, South-East, and North-East.
He said 12 micro-lending institutions have already benefited from the scheme, while 85 applications are currently being processed under the pilot phase.
“Our target is to reach at least 100,000 SMEs nationwide. We are building a platform that connects funding partners with credible micro-lending institutions, creating a reliable channel for financial inclusion,” Ogbaa said.
He added that COMCIN is also working to attract larger funding pools from development finance institutions and private investors, noting that successful implementation of the pilot phase would boost confidence and unlock more capital for SMEs.
“We have seen encouraging testimonies from early beneficiaries. As we demonstrate transparency and efficiency, more institutions will be willing to channel funds through us,” he said.
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