ing.
Nigeria’s biggest publicly listed bank, Guaranty Trust Bank, sent out emails Tuesday, Jan.14, saying rates on its Quick Credit product had been reviewed downwards to 1.33 percent monthly from 1.75 percent.
“This means that the effective interest rate on quick credit is now 16 percent per annum,” GTBank said in the email to clients. This is coming from a peak of around 25 percent.
Analysts expect other banks to follow suit in reducing the cost of credit to customers as competition for retail pockets heat up.
As a result, working-class Nigerians are now weighing up the possibility of targeting relatively cheap personal bank loans amid the drastic fall in lending rates.
“I am tempted to borrow some money to get a second car for use on the car-hailing app Uber as a way of making some income on the side,” Ade Akinowo, a civil rights lawyer told BusinessDay.
Although it comes with its risks, the impact of making consumer loans more accessible would be transformational on households and the economy as it stimulates consumption.
Akinsola of Chapel Hill Denham said a lending boom could yet drive non-oil sector growth this year and that would be a welcome boost for an economy still reeling from a recession in 2016.
“Credit to the private sector has already started improving since the CBN’s aggressive lending push and that growth shows signs of continuing this year which could be positive for economic growth,” Akinsola said.
“It’s the CBN’s LDR policy working magic here,” Akinsola added. “The policy has helped cut out traditional distractions for the banks and they are now forced to look for opportunities outside government borrowing and oil and gas lending.”
On 7 January, the CBN circulated a directive that Nigerian banks must maintain a minimum 65 percent loan-to-deposit ratio (LDR) by March 2020, or CBN will impose a 50 percent cash reserve requirement (CRR) equal to the lending shortfall on deposits.
Consumer lending in Nigeria is hampered by weak household credit record history and higher incidence of nonperforming loans
The CBN in July 2019 imposed a minimum LDR of 60% for Nigeria banks and in September 2019 increased that to 65%. As of October 2019, the system’s LDR ratio was 61.9%, according to the latest CBN data, indicating that some banks do not yet meet the requirement.
While the CBN directive has forced banks to open the lending taps- which holds benefits for the economy as individuals and businesses have better access to credit, it may have some downsides.
Peter Mushangwe, a banking analyst at credit rating agency, Moody’s Investors Service, said the CBN’s directive may do more harm than good for the economy in the long term.
Although gross loans and advances increased 4% by October 2019 from July, when the regulation took effect, loans will need to grow by around NGN690 billion (about 5% of gross loans as of 31 October) to meet the minimum requirement by March 2020, according to Mushangwe.
“Given Nigeria’s challenging operating environment, meeting the minimum requirement will be credit negative for banks because we expect them to make potentially riskier loans, which will outweigh potential benefits from diversification as they lend to more granular borrowers and reduce their high single-name concentration risk,” Mushangwe said.
Nigerian banks have limited exposure to SMEs and household borrowers, who have a combined contribution of lower than 10 percent of total loans.
Consumer lending in Nigeria is hampered by weak household credit record history and higher incidence of nonperforming loans.
Source: Businessdayng
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