Banking Sector Update - CBN Makes Statement Move On Intention To Drive Lending

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Thursday, October 03, 2019 /05:45PM /by CardinalStone Research / Header Image Credit: Pardot

In line with its recent drive to stimulate domestic economic growth by igniting bank lending, the Central Bank of Nigeria (CBN) has taken a raft of actions to achieve its goal over the last few days.


Precisely, on 30 September, 2019, the apex bank released a circular mandating an increase in banks' minimum LDR requirement to 65.0% from 60.0%, with a compliance deadline of 31 December 2019. Days later, several media outlets revealed that the CBN also debited 12 banks who failed to meet the initial deadline of 60.0% LDR by September 30, 2019, in line with the penalty stipulated in the initial circular. ZENITHBANK (N135.6 billion), UBA (N99.7 billion) and FBNH (N74.7 billion) were the worst hit of the 12 sanctioned banks. GUARANTY (N25.1 billion) and FCMB (N14.4 billion) were the other affected banks within our coverage. While we await more clarity on some prevailing issues surrounding the sanctions, we highlight the following key themes:


  • The CBN is serious! The decision to not only increase the minimum LDR requirement but also penalize banks that failed to meet the initial deadline suggests that the CBN is very deliberate about its plan to support growth. With CBN's body language suggesting limited scope for rate cuts in the near term, we believe that the apex bank is being strict on the enforcement of regulatory measures to enhance credit creation 
  • The CBN's assessment is likely based on overall net stable funding, not just deposits. It appears that the CBN uses a broader definition of the loan to deposit ratio (LDR), which encapsulates other sources of funds such as borrowings, shareholders' funds, and deposits. This, possibly, explains why a bank like FCMB, which had an LDR of 75.1% at the end of H1'19, was also penalized. As at H1'19, the bank's loan to funding ratio was at 51.7%. This may also partly explain ZENITHBANK's early redemption of part of its $500 million Eurobond in September
  • Banks will likely be antsy in their strategies to grow loans. The new measures are also likely to force banks to anxiously re-evaluate their loan growth strategies. Based on the H1'19 numbers of our coverage banks, only ACCESS (+37.8% - reflecting the impact of its merger with Diamond Bank), FIDELITYBK (+15.8%), and STANBIC (+6.0%) reported YTD loan growths. Unsurprisingly, none of these banks were negatively impacted by the recent sanction
  • Asset quality concerns may re-emerge. We see this as a possibility given the prevailing weakness in macro fundamentals, which likely explains banks' cautious approach to loan growth. With the near term outlook for most consumer and manufacturing firms looking largely unfavourable on the back of recent fiscal measures, we believe that a desperate push to increase lending could lead to growth in non-performing loans
  • Net interest margins are likely to be depressed on banks' reaction. We see this as a possible negative consequence of CBN's latest push as banks may be forced to reprice loans lower in competition for scarce quality obligors. This implied weakness in NIMs as well as the opportunity cost of relinquishing 50.0% of the lending shortfall to the CBN could also negatively impact earnings. We expect that banks who have already been punished will be unwilling to get caught up in the storm again, as that will be a negative signal to investors

All in, we believe this development is largely negative for the banking sector, which has only just recovered from the weak asset quality issues prevalent since 2016. We also believe that the macro-environment is still too fragile to support strong growth in lending. 

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Related News on Banking Sector

  1. 12 Banks To Pay N499b CBN Fine For Loan Policy Breach - Oct 03, 2019
  2. Nigerian Banks Tried, But 'Not All' Made New Loans Threshold - Oct 01, 2019
  3. CBN Reviews LDR Target Upwards To 65%; DMBs Required To Attain LDR of 65% By Dec 31, 2019 - Oct 01, 2019
  4. Banks' H1 2019 Numbers: Top Line Growth, Bottom Line Uncertainty - Sep 22, 2019
  5. Banking Sector Update - Latest Cashless Initiative Largely Positive For Banks - Sep 18, 2019
  6. Nigerian Banking Sector Recovery Still Hampered By Bad Loans - Jul 29, 2019
  7. Banking Sector Update - Reviewed SDF Guidelines: Clear Intent; Minor Impact - Jul 12, 2019
  8. CBN Delivers Another News On Standing Deposit Facility of Nigerian Banks - Jul 11, 2019
  9. CBN Issues Guidelines on Accessing Standing Deposit Facility; Effective Thursday July 11, 2019 - Jul 10, 2019
  10. CBN Releases Modalities For The Implementation of The Creative Industry Financing Initiative - Jul 05, 2019
  11. DMBs No Longer Require Prior Approval From CBN To Offer Mobile Money Wallet Services - Jul 05, 2019
  12. CBN’s New Minimum LDR Requirement May Worsen NPLs - Jul 04, 2019
  13. CBN Mandates DMBs To Maintain Loan To Deposit Ratio Of 60% Effective Sept 30, 2019 - Jul 04, 2019
  14. Banking Sector Records 557.08m Volume of Transactions in Q1 2019 - NBS - May 31, 2019
  15. The Many Headaches Of Keystone Bank - Underlying Pressures Persist - Mar 31, 2019
  16. PDF: Heritage Bank - The Game Is Up: Time For A New Player With A Market GamePlan - Mar 2019
  17. Nigeria: Macro-Economic and Banking Sector Themes For 2019 - Jan 28, 2019
  18. How The Rules of The Game Are Changing in Africa's Banking Sector - Oct 28, 2018
  19. Afrinvest Banking Sector Report Sets Agenda for New Government - Oct 17, 2018
  20. FSDH Research Forecasts a Growth in the Banking Sector Credit to Private Sector - Apr 03, 2018
  21. PDF: FBNH Performance Assesment Report 2017 H1 20171018 - Jun 2017
  22. PDF: Analysing the Performance of FBN Holdings Plc - Mar 2017
  23. Application of International Standard on Auditing (ISA) 701 in the Banking Sector - Feb 06, 2017

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Related News On H1 2019 Corporate Results


  1. ACCESS Declares N63.03bn PAT in Q2 2019 Results; Proposes 25k Interim Dividend,(SP:N6.45k) - Sep 06, 2019
  2. UBA Declares N56.74bn PAT in Q2 2019 Results; Proposes 20k per share Interim Dividend,(SP:N5.85k) - Aug 30, 2019
  3. FIDELITYBK Declares N13.69bn PAT in Q2 2019 Results (SP:N1:66k) - Aug 30, 2019
  4. STANBIC Declares N36.25bn PAT in Q2 2019; Proposes N1.00 Interim Dividend,(SP:N35.00k) - Aug 28, 2019
  5. ZENITHBANK Declares N88.88bn PAT in Q2 2019 Results SP:N16.00k - Aug 20, 2019
  6. GUARANTY Declares N99.13bn PAT in Q2 2019 Results; Proposes N0.30kobo Interim Dividend,(SP:N25.75k) - Aug 16, 2019
  7. STERLNBANK Declares N5.66bn PAT in Q2 2019 Results,(SP:N2.24k) - Jul 31, 2019
  8. UNITYBNK Declares N967.51m PAT in Q2 2019 Results,(SP:N0.63k) - Jul 31, 2019
  9. FBNH Declares N31.72bn PAT in Q2 2019 Results,(SP:N5.65k) - Jul 30, 2019
  10. UBN Declares N11.85bn PAT in Q2 2019 Results,(SP:N6.85K) - Jul 30, 2019
  11. FCMB Declares N7.53bn PAT in Q2 2019 Results, (SP:N1.65k) - Jul 29, 2019
  12. WEMABANK Declares N2.25bn PAT in Q2 2019 Results,(SP:N0.62k) - Jul 29, 2019
  13. ETI Declares N59.49bn PAT in Q2 2019 Results, (SP:N9.00k) - Jul 26, 2019

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Related Links On Banks IR Page in Proshare MARKETS

  1. Access Bank Plc
  2. ETI Plc
  3. Fidelity Bank Plc
  4. FBN Holdings Plc
  5. GTBank Plc
  6. Stanbic IBTC Holdings Plc
  7. UBA Plc
  8. Union Bank Plc
  9. FCMB Group Plc
  10. Sterling Bank Plc
  11. Unity Bank Plc
  12. Wema Bank Plc
  13. Zenith Bank Plc

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Related Links on Banks H1’ 2019 Financial Reports 

  1. Report for the Period ended 30th June 2019 - ACCESS Plc - Sep 06, 2019
  2. Report for the Period ended 30th June 2019 - UBA Plc - Aug 30, 2019
  3. Report for the Period ended 30th June 2019 - Fidelity Bank Plc - Aug 30, 2019
  4. Report for the Period ended 30th June 2019 - STANBIC IBTC - Aug 28, 2019
  5. Report for the Period ended 3oth June 2019 - ZENITHBANK Plc - Aug 20, 2019
  6. Report for the period ended 30th June 2019 - GTBANK Plc. - Aug 16, 2019
  7. Report for the Period ended 30th June 2019 - STERLNBANK Plc - Jul 31, 2019
  8. Report for the Period ended 30th June 2019 - UNITYBNK Plc - Jul 31, 2019
  9. Report for the Period ended 30th June 2019 - FBNH Plc - Jul 30, 2019
  10. Report for the Period ended 30th June 2019 - UBN Plc - Jul 30, 2019
  11. Report for the Period ended 30th June 2019 - FCMB Plc - Jul 29, 2019
  12. Report for the Period ended 30th June 2019 - WEMABANK Plc - Jul 29, 2019
  13. Report for the Period ended 30th June 2019 - ETI Plc  - Jul 26, 2019


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