PUNCH
Foreign exchange liberation is likely to have a modest impact on banks’ Lending to Deposit Ratio, a report by Cordros Securities has said.
The securities firm said in a report titled, ‘Impact of the CBN’s plan to re-enforce LDR on Tier 1 Banks’, that the banks may be forced to revalue their loans and deposits in foreign currencies.
“Interestingly, the LDR re-enforcement comes at a time of sharp FX depreciation, implying that loans and deposits in foreign currencies will have to be revalued,” the report said.
It noted that the Central Bank of Nigeria communicated through individual circulars to Deposits Money Banks on 24 July 2023, a message to reaffirm its commitment to not only retain the minimum LDR at 65 per cent, but also resume its enforcement of this directive effective 31 July 2023.
Accordingly, it noted, the DMBs failing to comply with the requirement from the effective date would be liable to an additional Cash Reserve Requirement of c.50 per cent, charged on the lending deficit implied by the target LDR (i.e., 65 per cent – DMBs LDR).
Specifically, it added, the apex bank mentioned in the circular that the policy aimed to moderate the financial system’s excess liquidity.
“In addition, according to the CBN, when it first implemented this directive, this policy would help bridge the credit gap and support Nigeria’s real sector,” it said.
The report analysed Cordros’ views on the possible impacts of the policy on banks under its coverage.
Cordros stated that, “Our analysis of DMBs’ compliance to the CBN’s 65 per cent minimum LDR directive reveals a consistent breach by all the banks we cover.
