The Central Bank of Nigeria has ordered commercial banks to issue out more loans. Every commercial bank has to loan out up 60% of its customer’s deposits, with preference to SME, Mortgage, Retail and Consumer Lending.
The CBN is going to ensure this happens by punishing banks that fail to comply with this directive by increasing the compulsory amount they have to keep (Cash reserve ratio) with the CBN from 22.5% to 50%. This means 50% of a bank’s deposit will be sent to the CBN.
Why should I care?
On the plus side: The chances that you’d receive a loan from a Bank has just increased.
Also, Companies with good cash flows and collateral have higher chances of obtaining loans too.
On the negative side: FinTech companies that specialise in doling out quick loans to consumers might start facing increasing competition from bigger commercial banks.
Also, the main beneficiaries of CBN’s directive appear to be the informal sector of the economy. Unfortunately, most of the players have projects or funding requirements that are hardly bankable, either because of lack of adequate collateral or evidence of steady cash flows.
What we think: Banks are known to find their way around rules from the CBN. Let’s see how this plays out, after all, you can lead a horse to water, but you can’t make it drink. 😈 (tweet this)