This archive report was first published on 11 July 2019.
As of September, Nigerian banks must adhere to a loan to deposit ratio of 60%, a directive from the nation's Central Bank aimed at boosting lending to small and medium-sized businesses and individual borrowers.
Following a decline in economic growth between 2016 and 2018, Nigerian banks decreased their lending to small businesses and individual consumers, instead investing in less risky government securities.
Four banks likely to be impacted by the new law are Zenith Bank, United Bank for Africa, Guaranty Trust Bank, and Stanbic, due to their low loan to deposit ratios.
Banks failing to meet the set standard by September will be subject to a cash reserve requirement levy, equal to 50% of the lending shortfall.
Analysts predict that the new law will increase the number of non-performing loans in the Nigerian banking sector, leading to a decrease in banking stocks as investors price in the negative effects of increased lending.
Charles Robertson, global chief economist at Renaissance Capital, suggests that a more suitable alternative to the lending problem would be for the government to reduce the budget deficit, as noted in the African Report published on July 11, 2019.
