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UPDATE 6-Nigeria levies $1.3 bln charge on banks for failing to meet loan target

Published 03/10/2019, 23:13
Updated 03/10/2019, 23:13
© Reuters.  UPDATE 6-Nigeria levies $1.3 bln charge on banks for failing to meet loan target

© Reuters. UPDATE 6-Nigeria levies $1.3 bln charge on banks for failing to meet loan target

* Nigeria has set minimum 65% loan-to-deposit ratio
* Several banks have missed September deadline
* Mid-tier lender FCMB says it was levied $46 mln
* Central bank trying to boost lending to support growth

(Adds comment on bankers meeting with central bank)
By Chijioke Ohuocha
LAGOS, Oct 3 (Reuters) - Nigeria's central bank has levied a
charge on 12 banks for a total of more than 400 billion naira
($1.3 billion) for failing to increase loans to meet a
regulatory target, three banking sources and one of the lenders
told Reuters on Thursday.
The central bank asked lenders in July to maintain a ratio
of lending out at least 60% of deposits by September or face a
higher cash reserve levy, part of measures aimed at getting
credit flowing in Africa's biggest economy. The cash reserve requirement in Nigeria is 22.5%. However,
the regulator has said that banks which fail to meet its new
minimum loan target will face a higher cash reserve requirement
equal to 50% of the lending shortfall.
Central bank spokesman Isaac Okoroafor confirmed the levy on
Thursday. The funds will go into the cash reserve requirement
and will not be available to the banks, the spokesman said.
The central bank has been seeking to boost credit to
businesses and consumers following recession in Nigeria, but
lending has yet to pick up. With growth slow, banks prefer to
park cash in risk-free government securities rather than lend to
companies and consumers.
Nigeria's economy is expected to pick up in 2019 with gross
domestic product expanding close to 3%, up from 1.9% last year,
according to the central bank.
Since the recession, lenders have done little to expand
credit in Nigeria, blaming a weak economy after a 2014 oil price
crash and a currency crisis that made loans go sour. Analysts
fear growing credit quickly could weaken asset quality and
capital buffers.
The central bank has said loans rose 5.3% in the three
months to the end of September, to 16.40 trillion naira, due to
the new minimum requirement, and increased the lending ratio
target in what it said was a move to sustain the momentum.
SHORTAGES
Lenders maintain a reserve account with the central bank to
ensure that they do not run out of cash to meet payment demands
from depositors. The central bank also uses the cash reserve
requirement to manage liquidity.
Bank chiefs met with the central bank in Abuja on Thursday
and asked the regulator to review the amount charged stemming
from disparities on when the levy should kick in.
"We believe this development is largely negative for the
banking sector ... the macro-environment is still too fragile to
support strong growth in lending," analysts at Cardinal Stone
said.
The local units of Citibank C.N and Standard Chartered
Bank STAN.L are among those affected, the sources said.
"We are mindful of the fact that there are some vulnerable
sectors that we will be lending to," said Mobola Faloye,
executive director of risk at Standard Chartered Bank. She did
not identify those sectors.
"It is important that we mitigate our risks and have what we
called a credit default clause that allows us to set off the
obligations of defaulting party against any other monies that
defaulting party has in the industry," she said.
Other banks affected include top tier Nigerian lenders
Zenith Bank ZENITHB.LG , Guaranty Trust Bank GUARANT.LG ,
First Bank FBNH.LG and United Bank for Africa UBA.LG , the
sources said.
Mid-tier lender FCMB FCMB.LG said it was levied 14 billion
naira. It added that it would improve loan growth with a focus
on asset quality. Other banks declined to comment.
In the last few months, the regulator has capped
interest-bearing deposits at the central bank and barred banks
from buying treasury bills for their own accounts at an open
market auction, to boost lending. = 306.40 naira)

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