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Lending at Tier 1 Banks Stall as Deposits Jump

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A key measure of lending continues to decline among the five largest banks even as the regulator had formulated policies that would force them to extend credit to the real sector.

The average loans as a percentage of total assets reduced to 37.87 percent in June 2021 from 38.76 percent as at June 2020, according to MoneyCentral calculations.

The loans to assets ratio measure the total loans outstanding as a percentage of total assets. The higher this ratio indicates a bank is loaned up and its liquidity is low. The higher the ratio, the riskier a bank may be to higher defaults.

The reason for the stark difference is that the big banks have a large balance sheet and they are not perceived as a loan opportunity, according to Ayodeji Ebo, equity research analysts at Chapel Hill Denham Limited.

“Of course, the large ones invest more in investment securities and they do not want to take as much risk as the small players,” adds Ebo.

Ebo is on point as the five largest lenders Access Bank, Zenith, United Bank for Africa, FirstBank Holdings, and Guaranty Trust Holdings have a combined total assets of N39.13 trillion as at June 2021.

That is higher than N13.12 trillion cumulative total assets of Fidelity Bank, Stanbic IBTC Holdings, Union Bank, FCMB, Wema Bank, Unity Bank, and Sterling Bank, according to data gathered by MoneyCentral.

Worried that lenders were sitting on piles of cash they were not extending to small and medium scale enterprises, the central bank jerked up the minimum loans to deposit ratio to 65 percent.

But analysts argued that mandating banks to give credit to risky sectors could balloon the non-performing loans banks that are still recovering from the coronavirus pandemic that led to spiraling impairment on financial assets.

The rules seem to be making small and mid-sized lenders to focus more on financial intermediation as average loans to total assets moved to 42.64 percent in June 2021 from 40.71 percent the previous year.

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