Expert in the financial market have flayed the Central Bank of Nigeria (CBN) to retain Loan to Deposit Ratio (LDR) at 65 per cent, urging the apex bank to reconsider its decision in order to forestall further depreciation in banking stocks in the nation’s bourse.
Specifically, the expert stressed the need for government to engender and fast track far reaching economic reform programmes that would bring about a more favourable economic climate, boost real sector operations and ultimately bring about a reduction in inflation rate to five per cent.
Addressing participants at the Investiture and Induction of Associates of the Chartered Institute of Stockbrokers, in Lagos at the weekend, the Founder of Stanbic IBTC Plc, Atedo Peterside categorically stated that the stock market is on a downtrend due to the CBN monetary policy decisions of the apex bank..
He noted that the new policies have impacted negatively on share prices of banking stocks, which have continued to witness a free fall thereby, depressing the All-share index and market capitalisation.
“What the Central Bank of Nigeria has done is to come out with a loan to deposit risk which is rigid and punitive. The logical implication of that is that if banks take deposit, they must take loan for you and when they do not find loans to take, they stop deposits because if they take it, they cannot realise them.
He continued: “So if inflation is 12 per cent and banks are offering you deposit at one per cent to two per cent, what are the likely things you are going to do, you can buy foreign exchange, because investors have a choice , you can buy property, and you can also buy foreign exchange.
“Unless you are buying a stock that you know is going to be very cheap and it has value in dollar terms, the short every body does is to think about speculating in foreign exchange, so these are the things that are making it impossible for the stock market to function.”
According to him, government must target a reduction of inflation rate to about five percent, if the nation must record reasonable level of growth.
Furthermore, he urged the apex bank to guide against naira devaluation, noting fear of devaluation is disincentive to investment.
The CBN, in exercise of its mandate to drive credit to the real sector of the economy particularly the small and medium scale enterprises (SMEs) had in October 2019, increased LDR to 65 per cent
However, analysts have argued that the new LDR policy has the potential to negatively impact the quality of banks’ loan portfolio in their attempt to meet the CBN target which could further increase the already high Non-Performing Loans (NPLs) especially in an economy beset by high inflationary trends and diminishing consumer demands.