LDR Policy: Plausible but Insufficient to Stimulate Growth – CSL
CSL Stockbrokers Limited, a subsidiary of FCMB group, has explained that though apex bank loan to deposit ratio target is plausible but in actual sense, it is insufficient to stimulate economic growth.
Though, the Central Bank of Nigeria is of the view that channeling credit into the real sector would stimulate growth, but pundits are pointing to structural weaknesses working against this expectation.
On the policy, some analysts also explain that the apex bank policy is counterproductive when consider the series of debit on lenders that failed to meet the target.
Many banks reported effective cash reserve ratio above 100%, the most common trend among the systemically important banks.
Even Tier-II capital lenders are not finding high effective CRR with the CBN due to the apex bank non-refund policy.
It would be recalled that the Central Bank of Nigeria raised loans as proportion of deposit ratio to 65% in order to support lending into the real sector of the economy.
At the recent concluded MPC meeting, the Central Bank Governor, Godwin Emefiele disclosed that the total credit to the economy rose to N19.33tn in August 2020.
This was N3.76 trillion above N15.57 trillion reported in May 2019 as a result of the minimum Loan to Deposit Ratio (LDR) policy of the apex bank.
He further highlighted that the significant growth in credit was mainly driven by the manufacturing (N866.27bn), consumer credit (N527.65bn), oil and gas (N477.65bn), agriculture (N287.11bn) and construction (N270.97bn) sectors.
“We recall the CBN announced a raft of policy measures in Q3 2019 and Q4 2019 including the minimum LDR of 60% (which was later increased to 65%) as well as banning local investors from participating in its Open Market Operation (OMO).
“These policies led to a downward pressure on lending rates due to increased liquidity as well as pressure on banks to create new loans given that non-compliance with the LDR policy attracts sterilization of 50% of the shortfall required in meeting the threshold in form of CRR debits”, CSL explained.
Thus far in 2020, CSL said the apex bank has reduced the benchmark Monetary Policy Rate (MPR) twice to 11.5%, reviewed the interest rate on savings deposits to a minimum of 10% of the monetary policy rate (MPR) from 30% previously.
It also adjusted the asymmetric corridor around the MPR from +200/-500bps to +100/-700bps.
“We believe the ultimate aim of these policy measures is to bring down lending rates and stimulate credit creation in the economy, thus improving economic output”, the firm noted.
“While we acknowledge the efforts of the apex bank, we note that the presence of structural bottlenecks in the operating environment will continue to limit the effectiveness of monetary policy tools in stimulating economic growth”, CSL Stockbroker stated.
Read Also: Bankers back CBN’s cashless policy, says LDR compliance raise lending
LDR Policy: Plausible but Insufficient to Stimulate Growth – CSL
