N1 Trillion Loans In 6 Weeks: Expert Warns On Increased Risks

By Emmanuel Aziken

The estimated N1 trillion of new loans to be given out by the banks before December 31 for the lenders to meet with the Central Bank of Nigeria’s 65% LDR requirements is fraught with generating unnecessary risks in the sector, a financial expert has warned.

Mr. Ike Chioke, Chief Executive Officer of Afrinvest in an interview called for caution in the implementation of the policy in order not to flood the system with a huge amount of Non-Performing Loans in 2020.

The apex bank which at the middle of the year asked the banks to raise the LDR to 60% by the end of the third quarter sucked in N499 Billion into the statutory reserves of the banks which failed to make it. The bank immediately raised the new LDR threshold to 65% in a move it was said was to give credit to the real sector.  

However, warning against the prospect of leading to higher NPLs, Chioke said:

“With the CBN circular that banks must meet a new Loans to Deposit Ratio of 65% it is going to force a lot of these big banks, mostly the Top Tier banks who control about 80% of the risk assets in the system to give out more loans.

“Today the average Deposit to Loan ratio is 56% but they have to get it to 65% and that is a 9% shift. That 9% shift is at least N1 trillion of new loans to be created between now and the end of year.

“With that you are going to create more risks and some of them will not perform and come 2020 we will be talking of Non-Preforming Loans once again.”

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