Now Abuja targets banking institutions

IBA Legalbrief Africa Issue 844

Just days after a UK court granted Nigeria permission to appeal against a ruling that would have allowed a foreign company to seize assets worth 20% of the country’s foreign reserves, its central bank announced that it plans to charge 12 banks a total of more than $1.3bn for failing to meet its minimum loan-to-deposit ratio requirement by a September deadline. Legalbrief reports that the move reflects a pattern where Abuja is hitting companies and lending institutions with massive fines. And investors are watching nervously over their shoulders. The central bank has been seeking to boost credit to businesses and consumers after a recent recession, but lending has yet to pick up. With growth slow, banks prefer to park cash in risk-free government securities rather than lend to companies and consumers. In July, the central bank asked lenders to maintain a ratio of lending out at least 60% of deposits by September as part of measures aimed at getting credit flowing. A report on the IoL site notes that the local units of Citibank and Standard Chartered Bank are among those affected. Others include top tier Nigerian lenders Zenith Bank, Guaranty Trust Bank, First Bank and United Bank for Africa. A report on the Fin24 site notes that the banks have until 31 December to comply with the directive or risk an additional cash-reserve requirement equal to 50% of the lending shortfall implied by the ratio. ‘The impact on asset quality will be very apparent when the economy experiences a change in the business cycle,’ said Omotola Abimbola, a macro analyst at Chapel Hill Denham Securities in Lagos. He said banks needed to expand credit in a ‘sustainable manner, not in a rush, which will be the concern of some of the banks’.

Full report on the IoL site

Full report on the Fin24 site