Tier-1 banks’ loan-to-deposit shrinks half-year

As Tier-1 banks continued to be driving force behind credit to real sector of the economy, the subsequent drop in deposit and macro economy challenges have shrink loan-to-deposit in three out of four Tier-1 banks in half year of 2017.
Tier-1 banks with marginal decline in loan-to-deposit are Zenith Bank Plc, Guaranty Trust Bank Plc (GTBank) and First Bank of Nigeria Holdings Plc while United Bank for Africa Plc (UBA) loan-to-deposit increased marginally.
The Central Bank of Nigeria’s (CBN) decision to hold its Monetary Policy Rate (MPR) at 14 per cent in 2017 has been an important factor behind the slow but steady recovery of the nation’s economy, but it has had positive as well as negative impacts on the interest banks charge customers on loans granted.
The loan-to-deposit ratio, as its name suggests, is the ratio of a bank’s total outstanding loans for a period to its total deposit balance over the same period, but this also means that the bank doesn’t have cash on hand for contingencies.
According Business247 Online News findings, a combination of prudence shows that Tier-1 banks loan-to-deposit ratio is average at 60 -70 per cent in the half year of 2017.
One thing that strikes out from these four Tier-1 banks loan-to-deposit ratios in the half year results of 2017 is First Bank of Nigeria Holdings. In the review period, it recorded loan-to-deposit ratio of 74.50 per cent in H1 2017 from 77.1 per cent recorded in 2016 while UBA’s loan-to-deposit moved from 61 per cent to 64 per cent in H1 2016.
This means that First Bank of Nigeria has an extremely risk-averse business model that focuses almost entirely on traditional banking services, and its regional focus also supports its high loan-to-deposit ratio.
First Bank of Nigeria Holdings has more outstanding deposit and loan to customers better than other Tier-1 banks, which is why it enjoys a loan-to-deposit ratio of 77.1 per cent in 2016 financial year despite the difficult but improving market condition.
On the other hand, the two tier-1 banks– GTBank and Zenith Bank– have significant custody banking services, which require them to keep more of their deposits liquid.
For the half year of 2017, GTBank loan-to-deposit dropped from 75.30 per cent in 2016 to 73.70 per cent in H1 2017 while Zenith Bank loan-to-deposit closed H1 2017 at 66.2 per cent from 67.8 per cent recorded in 2016.
Zenith Bank has seen the lowest change in this figure recently, as its geographically diversified business model has allowed it to leverage its presence in key developing nations to grow both deposits as well as loans at roughly the same rate.
The Managing Director, Highcap Securities Limited, Mr. David Adnori, explained that an average 60-70 per cent loan-to-deposit by banks mean a brighter future for the nation’s economy.
He noted credit facilities provision by banks continued to increase amid macro economy headwinds.
According to him, “Banks are granting more loans from customers’ deposits to the real sector of the economy. Commercial banks are watching the economy situation before granting loans and we expect that to improve with the current report by National Bureau of Statistics (NBS) that we are out of recession,” he said.