CBN’s loan directive Credit negative for banks – Fitch

Global rating agency, Fitch, says the new requirement for Nigerian banks to have a loan to deposit ratio (LDR) of at least 60 percent at end-September is credit-negative for the sector.

Fitch, in a press release Friday morning, said the new directive would push some banks to significantly increase lending to riskier borrowers, potentially with looser underwriting or underpricing of risk.

According to Fitch, the new LDR requirement in such a short timescale would be very difficult for some banks given their lending levels, particularly if customer deposits continue to grow at present rates.

CBN’s data show that the sector’s overall LDR was 57 percent at end-May.

“This is low relative to many markets, and reflects banks’ concern about the risk to asset quality from Nigeria’s often volatile operating environment,” Fitch said.

Nigeria’s largest banks, with the exception of Access Bank, have LDRs below or close to 60 peecent and will be among the most affected by the new requirement.