How banks loans to deposits ratio dropped amidst uncertainty

…As all Tier-1 banks listed on NSE report drop in loans, advances to customers
Commercial banks operating in the country have witnessed drop in loan-to-deposit ratio amid slowdown in lending to real sector of the economy and uncertainty leading to 2019 general elections.

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.

In the first half year of this year, commercial banks reported drop in loans and advances to customers despite increase in Deposits from customers.

Findings, however, revealed that all Tier-1 banks listed on The Nigerian Stock Exchange (NSE) reported drop in loans and advances to customers, leading to shrink in loans to deposits ratio in the period under review.

For instance, Guaranty Trust Bank Plc (GTBank) reported 54.53 per cent loan-to-deposit ratio in H1 2018 as against 73.73 per cent in H1 2017 while Access Bank loan-to-deposit moved from 74.3 per cent in H1 2017 to 58.7 per cent in H1 2018.

The lender’s gross Loans and Advances dipped by 6.8 per cent to N1.4 trillion as at June 30, 2018 from NN1.52 trillion reported in 2017 financial year.

The management of GTBank had announced plans to use some of its cash deposits to help grow its loan book by 10 per cent by the end of the year after credit declined in the first half.

The bank expects to boost loans to compensate for a drop in yields from treasury investments.

The Chief Executive Officer, Mr. Segun Agbaje, during the investors/analysts presentation last month, said the bank could earn a yield of about 7-9 per cent on loans compared with cash deposits in foreign banks earning two per cent.

Agbaje said the bank would take $700 million to $800 million out of its placements with foreign banks and deploy that into loans.

“We will still see some growth in our upstream (oil and gas) book,” Agbaje said.

Loans fell 11 per cent in the six months to June following a 9 per cent decline last year, the bank said on a call with analysts.

Agbaje said interest income declined as yields on treasury bills fell but the bank would push fees and commissions to boost growth

United Bank for Africa however reported 57 per cent loan-to-deposit in H1 2018 against 64 per cent in H1 2017 while Zenith Bank loan-to-deposit moved to 53.5 per cent in H1 2018 from 60.5 per cent in H1 2017.

In addition, Ecobank Nigeria reported 78 per cent loan-to-deposit in H1 2018 from 96.6 per cent in H1 2017 while FBN Holdings’s loan-to-deposit dropped to 67 per cent in H1 2018 from 74.5 per cent reported in H1 2017.