Cost of funds spikes by 313%
By Babajide Komolafe
The Central Bank of Nigeria, CBN, yesterday, deducted N650 billion from the account of some banks as Cash Reserve Ratio, CRR, the levy for failure to meet the 65 per cent Loan to Deposit Ratio, LDR.
This resulted in a scarcity of funds which caused interbank lending rates to shot up by 313 percentage points. Data from FMDQ showed that interest rate on Overnight lending rose by 971 basis points (bpts) to 12.64 per cent yesterday from 2.93 per cent on Monday. Similarly, the interest rate on Collateralised (Open Buy Back, OBB) rose by 957 bpts to 11.57 per cent from 2.0 per cent on Monday.
Following the expiration of the September 30, deadline for banks to comply with 60 per cent LDR introduced in July, the CBN raised the LDR requirement to 65 per cent, giving banks up till December 31, to comply with the directive.
In a circular announcing the new LDR, the CBN said: “The CBN has noted the appreciable growth in the level of the industry gross credit, which increased by N829.40 billion or 5.33 per cent from N15.6 trillion at end-May 2019, to N16.4 trillion as at September 26, 2019, following its pronouncements on the above initiative.
“In order to sustain the momentum and in line with the provisions of our earlier letter, the minimum Loan to Deposit Ratio, LDR, a target for all Deposit Money Banks (DMBs) is hereby reviewed upwards from 60 per cent to 65 per cent.
“Consequently, all DMBs are required to attain a minimum LDR of 65 per cent by, December 31, 2019, and this ratio shall be subject to quarterly review. To encourage SMEs, Retail, Mortgage and Consumer Lending, these sectors shall be assigned a weight of 150 per cent in computing the LDR for this purpose.
“Failure to meet the above minimum LDR by the specified date shall result in a levy of additional Cash Reserve Requirement equal to 50 per cent of the lending shortfall implied by the target LDR,” CBN said.
Vanguard gathered, however, that the apex bank effected the levy seven days to the expiration of the deadline.
A bank chief executive confirmed this development on condition of anonymity but said he could not ascertain the number of banks involved.