Fidelity Bank Nigeria Plc has adequate liquidity to cover loans in the event of an economic downturn resulting in loan defaults which explains why the lender has one of the highest loans to deposit ratio among major banks covered by MoneyCentral.
For the first nine months through September 2021, Fidelity Bank’s loans to deposit ratio stood at 85.36 percent, according to MoneyCentral calculations.
That is much higher than the regulatory benchmark of 65 percent as the central bank is steadfast in ensuring that lenders execute their fundamental financial intermediation needed to spur economic growth.
The loan-to-deposit ratio is used to assess a bank’s liquidity by comparing a bank’s total loans to its total deposits for the same period.
Typically, the ideal loan-to-deposit ratio is 80 percent to 90 percent. A loan-to-deposit ratio of 100 percent means a bank loaned one naira to customers for every naira received in deposits it received.
Also, the LDR helps to show how well a bank is attracting and retaining customers. If a bank’s deposits are increasing, new money and new clients are being on-boarded. As a result, the bank will likely have more capacity to lend, which should increase earnings.
However, the majority of Tier 1 lenders are struggling to reach or exceed the threshold.
Analysts say the small banks have larger LDRs because their total deposits are not as robust as the big ones who have the capital buffers to withstand any macroeconomic shocks.
While experts have warned that the new rules could stoke rising non-performing loans (NPLs) since a lot of sectors have not been de-risked, the policy is paying off as evidenced in the latest report by the apex bank body that credit to the economy has improved.
The recent money and credit statistics released by the Central Bank of Nigeria (CBN) showed a 1.7 percent month on month (m/m) increase in credit to the private sector, reaching another high of N34.5 trillion as of October from N33.9 trillion in September 2021.
Yearly, private sector credit was also up by 18.6 percent year on year (y/y) from N29.1 trillion in October 2020. Meanwhile, credit to the government declined by 1.0 percent m/m to N12.9tn in October from N13.0 trillion in September 2021.
The sustained credit to the economy has been a valuable stimulus tool.
However, the age long structural bottlenecks that have affected growth remain a problem, according to analysts at CSL Stockbrokers Limited.
The lower yields environment has also forced banks to extend credit to the economy as the central bank kept the benchmark interest rate at 11.50 percent which spurred credit to households.