The Central Bank of Nigeria (CBN) will soon sanction banks and their customers diverting agriculture and Bank of Industry (BoI) loans to government securities, The Nation has learnt.
Some banks and their customers are being investigated by the apex bank over shady deals intended to game the loan to deposit ratio (LDR) policy to their advantage.
Speaking on the development at the sidelines of the ongoing World Bank/ International Monetary Fund Annual Meetings in Washington D.C, CBN Director, Corporate Communications, Isaac Okorafor said the banking sector regulator initially set the LDR at 60 per cent before raising it to 65 per cent with a December 2019 deadline.
He explained that while this has led to lower lending rates, some banks are now giving loans to customers who go on to buy treasury bills (T-Bills) and other securities at CBN’s open market operations (OMO), thereby earning a margin considered as arbitrage – taking advantage of rate differentials in the markets.
There are also those who take intervention loans for agriculture and industry from the Bank of Industry at seven per cent and then invest in TBs and CBN’s OMO at 14 per cent – making a profit of seven percentage points without putting the funds in the sectors they were meant for.
The CBN has, therefore, instructed banks to reverse the TBs and OMO of customers suspected of arbitraging.
Okorafor said banks and customers will be punished and blacklisted for arbitrage.
“We are saying banks must lend. So we prescribed the LDR. Now that they are ready to lend and at reasonably low rates not buying securities, people should not borrow to buy securities thereby arbitraging. The economy must see growth induced by higher consumer and manufacturing output.
We will crack down on banks and companies that would attempt to game our policies through financial markets arbitrage.”
Continuing, he said: “Our policy meant to spur manufacturing output. We have started to see banks now marketing their customers for loans including consumer credits and mortgages,” he said.