October 3, 2019 / 10:11 AM / 17 days ago

UPDATE 6-Nigeria levies $1.3 bln charge on banks for failing to meet loan target

* Nigeria has set minimum 65% loan-to-deposit ratio

* Several banks have missed September deadline

* Mid-tier lender FCMB says it was levied $46 mln

* Central bank trying to boost lending to support growth (Adds comment on bankers meeting with central bank)

By Chijioke Ohuocha

LAGOS, Oct 3 (Reuters) - Nigeria’s central bank has levied a charge on 12 banks for a total of more than 400 billion naira ($1.3 billion) for failing to increase loans to meet a regulatory target, three banking sources and one of the lenders told Reuters on Thursday.

The central bank asked lenders in July to maintain a ratio of lending out at least 60% of deposits by September or face a higher cash reserve levy, part of measures aimed at getting credit flowing in Africa’s biggest economy.

The cash reserve requirement in Nigeria is 22.5%. However, the regulator has said that banks which fail to meet its new minimum loan target will face a higher cash reserve requirement equal to 50% of the lending shortfall.

Central bank spokesman Isaac Okoroafor confirmed the levy on Thursday. The funds will go into the cash reserve requirement and will not be available to the banks, the spokesman said.

The central bank has been seeking to boost credit to businesses and consumers following recession in Nigeria, but lending has yet to pick up. With growth slow, banks prefer to park cash in risk-free government securities rather than lend to companies and consumers.

Nigeria’s economy is expected to pick up in 2019 with gross domestic product expanding close to 3%, up from 1.9% last year, according to the central bank.

Since the recession, lenders have done little to expand credit in Nigeria, blaming a weak economy after a 2014 oil price crash and a currency crisis that made loans go sour. Analysts fear growing credit quickly could weaken asset quality and capital buffers.

The central bank has said loans rose 5.3% in the three months to the end of September, to 16.40 trillion naira, due to the new minimum requirement, and increased the lending ratio target in what it said was a move to sustain the momentum.

LIQUIDITY SHORTAGES

Lenders maintain a reserve account with the central bank to ensure that they do not run out of cash to meet payment demands from depositors. The central bank also uses the cash reserve requirement to manage liquidity.

Bank chiefs met with the central bank in Abuja on Thursday and asked the regulator to review the amount charged stemming from disparities on when the levy should kick in.

“We believe this development is largely negative for the banking sector ... the macro-environment is still too fragile to support strong growth in lending,” analysts at Cardinal Stone said.

The local units of Citibank and Standard Chartered Bank are among those affected, the sources said.

“We are mindful of the fact that there are some vulnerable sectors that we will be lending to,” said Mobola Faloye, executive director of risk at Standard Chartered Bank. She did not identify those sectors.

“It is important that we mitigate our risks and have what we called a credit default clause that allows us to set off the obligations of defaulting party against any other monies that defaulting party has in the industry,” she said.

Other banks affected include top tier Nigerian lenders Zenith Bank, Guaranty Trust Bank, First Bank and United Bank for Africa, the sources said.

Mid-tier lender FCMB said it was levied 14 billion naira. It added that it would improve loan growth with a focus on asset quality. Other banks declined to comment.

In the last few months, the regulator has capped interest-bearing deposits at the central bank and barred banks from buying treasury bills for their own accounts at an open market auction, to boost lending.

$1 = 306.40 naira Reporting by Chijioke Ohuocha; Additional reporting by Camillus Eboh in Abuja Editing by Mark Potter, Catherine Evans and Grant McCool

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