Why Nigerian banks are loaning you money and why you should absolutely take it
Nigerian banks are notorious for their reluctance in giving out loans to individuals and small businesses. Many Nigerians have always expressed frustration over their inability to access loans from the banks for personal or business purposes.
The banks are beginning to offer loans to some businesses and consumers. This is because of a new loan policy by the Central Bank of Nigeria, CBN.
The new CBN policy mandates all the banks to lend out more money to stimulate the economy or hand it over to the central bank without earning any interest in them. The banks had muted lending to businesses and consumers since racking up cash in risk-free government securities was more profitable.
But the apex bank believes the banks could complement its efforts in stabilizing the economy by providing more credit that will trigger economic growth.
“For us to achieve growth those whose responsibility it is to provide credit must be seen to perform that responsibility,’’ CBN Governor Godwin Emefiele said.
To achieve this, all banks were required to have a minimum loan to deposit ratio (LDR) of 60% by the end of September 2019. The LDR is the total amount of money a bank can issue as loans from their customers’ deposits. 12 major banks in Nigeria breached the policy as of October last year and CBN fined them a total of N499 billion ($1.4 billion). The fine was later refunded and the LDR was increased to 65%. The deadline for compliance was shifted to December 31, 2019.
By January 2020, the majority of the banks have begun offering loans to qualified applicants to meet the required loan-to-deposit ratio set by CBN to avoid sanctions. What this means is that once you have a steady stream of income that will minimize the risk of non-compliance, you can now apply for a loan.
Fidelis Udoh, a fairly used laptop and mobile phone trader at Computer Village, Lagos, said he’s planning on getting the loan to stock up his shop.
“If you look at the way things are now, it’s not easy to save a lot of money before going to buy products to stock up your shop. But if this loan thing will work, then it will be very helpful because you can buy products in large quantities and start repaying the loan little by little as you sell,” he said.
Another trader, Somto Michael who said he has been relying on greedy loan sharks to power his business, applauded CBN for the policy.
“Getting a loan from the bank is very difficult. Sometimes you have to rely on people who collect high interests. CBN did the right thing by forcing the banks to give out more loans to people like us,” he said.
With the absence of a reliable credit rating system in Nigeria, analysts are concerned that the policy might affect some banks who are at risk of incurring bad debts.
But CBN allays the fears by citing a decline in the rate of bad debts in Nigeria from 14% in the first quarter of 2018 to 11% in 2019. The regulator also said the new loan ratio will be subject to quarterly review.
