As the Central Bank of Nigeria (CBN) begins the monthly review of banks’ loan-to-deposit ratios next month, the apex bank has set lending limits for banks and other financial institutions under its watch to reduce exposure to risks.

The bank disclosed this in its Prudential Guidelines for microfinance banks; deposit money banks (DMBs), mortgage refinance companies, finance companies, and Development Finance Institutions at the weekend.

On  microfinance banks, the guidelines read: “The maximum loan to any individual borrower shall not exceed one per cent while a loan to group of borrowers, a cooperative or a corporate body shall not exceed five per cent of the MFB’s shareholders’ fund unimpaired by losses or as may be prescribed by the CBN.”

It stated that aggregate insider-related lending must not exceed five per cent of an MFB’s shareholders’ fund unimpaired by losses.

The CBN also said the total outstanding exposure by a DMB to any single person or a group of related borrowers must not at any point in time exceed 20 per cent of the bank’s shareholders’ fund unimpaired by losses.

It stated that “fifty per cent of a bank’s off-balance sheet engagements shall be applied in determining the bank’s statutory limit to a single obligor.”

It added that the total outstanding exposure (on and off-balance sheet) by a bank to all tiers of government and their agencies must not at any point in time exceed 10 per cent of the total credit portfolio.

At last month’s Monetary Committee Meeting (MPC), the apex bank said it would begin a monthly review of Deposit Money Banks’ loan-to-deposit ratios from September 30 as part of efforts to increase lending and stimulate economic growth.

Its  Governor, Mr Godwin Emefiele,  said the committee was of the view that there was a need to boost output growth through sustained increase in consumer credit, mortgage loans and granting loans to the Small and Medium Enterprises (SMEs).

He said the committee also observed that while the management of the CBN had started the prescription of using benchmark loan-to-deposit ratios to redirect the banks’ focus to lending, there was a need to mitigate credit risk.

To achieve this, Emefiele explained that the committee enjoined the management of the CBN to de-risk the financial markets, through the development of a reliable credit scoring system, similar to the arrangement in the advanced countries as this would encourage the DMBs to safely grow their credit portfolios.

He put the loan-to-deposit ratio of Nigeria’s banking industry at 57 per cent, adding that this was low when compared to countries such as Brazil (70 per cent), the United States (75 per cent), China (71.2 per cent), India (75 per cent), South Africa (91 per cent) Kenya (76 per cent), and Japan (70 per cent).

He said if there was no improvement in the loan-to-deposit ratio of banks, the CBN would from September 30 begin a monthly review of banking sector’s loan-to-deposit ratios.

He said, “We need everybody’s support to achieve growth in Nigeria. When the monetary policy raised the concern, we had a flat loan-deposit ratio.

“We would apply certain sanctions that involve asking the 50 per cent of the ‘un-lent’ portions of their loans into the CRR.

“The deadline is 30th of September. After September 30, we are going to begin a month-by-month monitoring and then prescription of deposit loan ratio for the banks.”