Panic has gripped deposit money banks in the country as Central Bank of Nigeria has wielded the big stick on recalcitrant lenders that failed to adhere to its credit policy.
Business activities in many of the deposit money banks are now being conducted in fear and trepidation following the N500 billion fine splashed on the 12 banks last week.
The Central Bank of Nigeria (CBN), had in a recent circular charged banks to increase loans to the real sector of the economy. The move was aimed at getting the economy on the right footing again. In the circular released by the apex bank last month, banks were prohibited from having a loan to deposit ratio less than 60 per cent even as it asked banks not to charge interest on excess cash balance above two billion naira.
Under Godwin Emefiele, the CBN had previously pushed its policies towards monetary stability, targeted principally at getting inflation under control, growing foreign reserves and stabilizing the local currency, the naira.
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The banks that fell under the CBN hammer include Zenith Bank Plc that received a fine of N135.6 billion; Citigroup N100.7 billion, UBA N99.7 billion, FBN Holdings (First Bank) N74.7 billion, Standard Chartered N30 billion, GTBank 25 billion, FCMB 14.4 billion. They banks were punished by the apex bank for failing to meet a target to provide more credit.
“This is a negative signal to the market because it compels banks to risk assets in an economy where you rarely find viable businesses given the macroeconomic conditions,” said Christian Orajekwe, head of securities trading at Cordros Securities in Lagos. “This could lead to some credit creation and new jobs in the short term, but in the long term there will be concerns about the performance of those loans. It may not be sustainable,” he said.
The sanctions come three months after the CBN gave lenders until September 30 to use 60 per cent of their deposits for loans, or hand half of the shortfall over to the Central Bank without earning any interest.
Of the six biggest banks in Nigeria only Access Bank Plc met the minimum threshold by the end of June.
Ahmad Abdullahi, head of banking supervision, said in Abuja that the money has already been deducted. Banks will continue to work on meeting the ratio after doing everything they could to increase lending, Akinsowon Dawodu, the CEO of Citigroup’s Nigerian unit, said.