CBN Debits Banks for Failing to Meet Loan Target

CBN Debits Banks for Failing to Meet Loan Target

The Central Bank of Nigeria (CBN) has resumed slamming additional debits on commercial banks that failed to meet its 65% loan-to-deposit target. The apex bank deducted an additional N250 billion from banks, according to an investment banker report. 

Recently, the apex bank indicated it planned to reverse cash reserve (CRR) ratio normalisation after spotting a declining appetite for lending to the real sector of the economy. But amidst a flurry of reforms, the CBN had reversed itself on incessant debits on deposit money banks in a move to normalise the use of the CRR as a monetary policy tool.

Banks have reduced their credit creation appetite following rising stage 2 loans as a result of pressures in the local economy. The CBN naira reforms worsen some banks’ financial scorecards with king-size FX losses recorded across sectors. Surprisingly, while some lenders recorded revaluation gain, there are banks whose income have been affected by the devaluation of naira.

Analysts predicted that economic reforms will have short to medium-term impacts on the ability of some corporate clients to repay their loans in 2023 as a result of negative events that started the year, the FX and subsidy reform.

Debits on Nigerian banks reduce investors’ interest in stocks. However, after the CBN’s short-dated normalisation, demand for banking stocks spiked, and the Nigerian Exchange re-rated the banking index over expectation of a better financial services regulation.

In their separate market updates, analysts told investors that money market rates decline over a flood of liquidity in the financial system. Short-term benchmark rates have been on a decline, falling to single digit low.

Cordros Capital reported that the overnight (OVN) rate declined significantly by 22.8% to 2.4% as the inflows from FAAC disbursements worth N591.62 billion hit the financial system.

Also, the marker recorded OMO maturities worth N40.00 billion. These inflows were sufficient to outweigh the week’s CRR debits of about N250.00 billion, Cordros Capital said in its weekend update. Analysts said the average system liquidity settled at a net long position of N286.55 billion as against a net short position of N203.48 billion in the previous week.

“Barring any significant inflows into the financial system to sustain the current liquidity levels next week, we believe the overnight lending rate will trend upward from current levels”, analysts said. #CBN Debits Banks for Failing to Meet Loan Target

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