So like I promised, I will be discussing some ways you can benefit from the current lending program initiated by the CBN.
As you already know, the CBN has mandated all banks to loan out 60% of their deposits to businesses. To show their seriousness, they warned that banks that fail to meet up with this lending ratio will be fined 50% of their shortfall.
I am sure that most banks did not take this seriously enough, until the 30th of September, when CBN deducted a total of N499Billion from 12 banks for non-compliance.
The 12 banks are ZenithBank(135.6B), CitiBank (100B), UBA (99.7B), FirstBank (74.7B), Standard Chartered Bank (30B), GTB (25B), FCMB (14.4B), JAIZ Bank (7.5B), Keystone (4B), Rand (2.8B), FBNQuest (2.7B), SunTrust (1.7B)
I listed these banks and the amounts debited, so you know which ones are the hardest hit, and thus more desperate to meet the target next time.
To make matters worse for the banks, the CBN immediately increased the lending ratio to 65%, so right now, either the banks loan out the money or they will lose half of it for nothing!
Several things are already happening that will definitely have a huge impact on the economy in the coming months and years.
Banks are forced to actively start looking for good projects and businesses to loan out money to. They are now spending the same energy they use in recruiting new customers in also looking for viable businesses to invest. This is because the more deposit they have, the more money they have to loan out in order to meet up with CBN Loan-to-deposit (LDR) ratio.
Banks are currently restructuring their loans by increasing the loan term and decreasing the interest rate, so as to make their loan packages more attractive and also reduce the number of bad loans. They will rather receive much less than the 23% interest they are used to, instead of losing the money entirely to CBN
This is another wonderful news for entrepreneurs, as they will now have more time to repay their debts and they will spend less money on servicing it.
If this policy is sustained, it has the potential to change the business landscape in Nigeria and it will have a serious impact on you as a business person.
So what should you do?
First, take a look at the banks I mentioned above. If you are already in business and have a business account with any of the most affected banks, then I will advise you to package your business proposal and meet with your account officer.
Believe me, they are extremely motivated right now to listen to you.
However, this does not mean that they are going to give out loans recklessly, because this can equally lead to their downfall. So it is important that you prepare yourself very well.
I will advise you to do the following before approaching your bank:
Make a good business plan, showing clearly your financial plan, break-even etc.. These are the major indices they will be looking for.
Carefully calculate the cost of finance based on our lecture in the BSC course. Make sure you present a cost that will be favorable to your business, you don’t have to accept whatever cost the bank gives you anymore. You now have room to prepare a better financial cost for your business, so make sure you understand every hidden cost of finance.
Don’t limit yourself to one bank only. Start with the banks I listed above, that are already in default, but do not ignore other great banks that are meeting up with their quota like Sterling Bank and WEMA bank. These banks although smaller, are more SME focused and thus were able to meet up with the CBN directive. So pay some attention to them as well.
Alright, let me stop here for today. In my next email, I will focus on those who do not currently have a running business and needs start-up funds. Banks are also designing more favorable programs for this category, and we shall be looking at some of these programs.