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NECA applauds central bank over 60 per cent loan deposit ratio

by on November 25, 2019
 

Nigeria Employers’ Consultative Association (NECA) has applauded the Central Bank of Nigeria (CBN) over it directive to the commercial banks to maintain a minimum Loan Deposit Ratio (LDR) of 60 per cent. The body said this will aid the growth of the real sector of the economy.

In a chat with newsmen, Director-General of NECA, Mr. Timothy Olawale said considering that access to funding is a major challenge for the manufacturing sector in the country, the CBN directive is a welcome development as the real sector has over the years suffered due to stringent conditions to access needed capital.

Olawale noted that the attempt by the CBN is worthy of commendation considering that over N1.5 trillion additional money will be available as credits to the real sector of the economy from this policy.

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He is however concerned about improving the flow of the needed credit to the private sector to stimulate growth, including what he termed as “unorthodox methods” being deployed to achieve this objective if effective monitoring mechanism is not put in place.

“Forcing the banks to lend under the current macro-economic situation will only result in a likely build-up of non-performing loans in the medium to long term, given the sluggish growth in the economy and the high risk in the operating environment. This could pose a risk to financial stability,” the NECA DG said.

He further noted that the interest rate charged by financial institutions is another source of worry for businesses. “With the volatility of the Nigerian economy and the unpredictable regulatory environment, the risk of a double digit interest rate could be too high for businesses, especially the Small and Medium Enterprises that are supposed to also be beneficiaries of the directive,” he said.

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Olawale, therefore, urged the CBN to do more than give directives but also ensure the effective implementation and monitoring of the directive. “More deliberate efforts should be made to ensure a hospitable business environment that will make lending attractive and borrowing by the real sector even more attractive,” he said.

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