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.”
“Payment of tuition fees for undergraduate/postgraduate studies shall be subject to a maximum limit of $25,000.00 per semester,” the Manual states.
The expansion of international card limits also reflects growing confidence among lenders that foreign exchange liquidity has improved enough to support retail dollar transactions.
Speaking recently at the BusinessDay 14th Annual CEO Forum in Lagos, CBN Olayemi Cardoso, governor of the CBN said buying and selling activities now increasingly determine outcomes in the foreign exchange market, unlike in the past when market participants relied heavily on routine Central Bank interventions.
According to Cardoso, Nigeria’s net foreign exchange reserves have risen from just over $3 billion at the start of the reform programme to more than $40 billion, while gross reserves have climbed to about $52 billion, providing stronger confidence for investors and enabling the Central Bank to reserve interventions for periods of market stress rather than day-to-day liquidity management.
The restoration and expansion of international naira card spending limits are increasingly being seen as one of the clearest signs that the benefits of the CBN’s foreign exchange reforms are beginning to reach households, students and businesses making legitimate cross-border payments.
The Secretary-General and Chief Executive Officer, WEC, Dr Angela Wilkinson, disclosed this in a statement, last Thursday.
“Nigeria’s participation comes at a pivotal time as the country seeks to expand energy access, strengthen energy security, accelerate gas development and mobilise the capital required for industrialisation and sustainable economic growth.
“WEC Nigeria will convene leaders from across the energy ecosystem, apply the WEC’s globally recognised Energy Trilemma framework to Nigeria’s unique context, and promote evidence-based dialogue, practical collaboration and informed policymaking.
“It will also ensure that Nigerian and broader African perspectives contribute meaningfully to global energy conversations,” she said.
Wilkinson expressed confidence that Nigeria would play a significant leadership role at the World Energy Congress scheduled for Riyadh in April 2027 and beyond.
The statement also quoted the Chairman of WEC Nigeria, Isa, as describing the country’s participation as an opportunity to deepen national and African leadership within the global energy community through practical solutions tailored to regional development priorities.
He said the platform would promote collaboration across sectors and attract sustainable investments into Nigeria’s energy sector.
The Chief Executive Officer of WEC Nigeria, Wunti, was quoted in the statement as saying that the council would connect leadership, evidence and investment to build a secure, affordable and sustainable energy system.
“This system will be capable of driving economic growth and shared prosperity.”
According to him, the platform will also connect Nigerian institutions and businesses with international knowledge, technology, partnerships and investment opportunities through the World Energy Council’s global network.
Recall that WEC, founded in 1923, is the world’s oldest independent and impartial community of energy leaders and practitioners, advancing informed, collaborative and practical action across the global energy system.