Nigeria orders banks to loan more money | The Guardian Nigeria News - Nigeria and World News

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Nigeria is giving its banks a choice: lend more money, or hand it over to the central bank and earn nothing on it. CentralBank CentralBankOfNigeria Nigeria

In an effort to boost economic growth in Africa’s most populous country, Nigeria is giving its banks a choice: lend more money, or hand it over to the central bank and earn nothing on it.

Nigeria’s banks are some of the most reluctant lenders in major emerging markets, with an average loan-to-deposit ratio below 60%. That compares with 78% across Africa, according to data compiled by Bloomberg. It’s above 90% in South Africa and about 76% in Kenya. The decision was taken “to ramp up growth of the Nigerian economy through investment in the real sector,” Ahmad Abdullahi, director of banking supervision, said in the letter to banks. “To encourage lending to small businesses and consumers and more mortgages, these sectors shall be assigned a weight of 150%” when computing the loan-to-deposit ratio.

Risk-averse Nigerian banks have resisted lending to businesses and consumers and instead piled their cash into naira bonds, which yield 14.3% on average, one of the highest rates globally. Lenders worry that with inflation at more than 11%, extending more credit could endanger the financial system through an increase in non-performing loans, or NPLs.

 

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What now happens to bad debts and loan defaulters / delinquent customers ? The apex bank needs to consider this and balance both sides.

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