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Nigeria's biggest banks could be worst-hit by another loan-to-deposit hike

The five largest Nigerian banks by assets will have to hike their loan-to-deposit ratio before the end of 2019 to avoid penalties, according to data compiled by S&P Global Market Intelligence.

The Central Bank of Nigeria expects lenders to meet its new minimum loan-to-deposit ratio requirement of 65% by the end of the year, having increased it to 60% in September. Access Bank PLC, Zenith Bank PLC, FBN Holdings PLC, United Bank for Africa PLC and Guaranty Trust Bank PLC all fell beneath the 65% threshold as of June 30, 2019.

Banks that fail to comply with the new regulation will face a higher cash reserve requirement, equal to 50% of the lending shortfall implied by the ratio.

Of the six largest lenders in Nigeria, only Access Bank reportedly hit the minimum threshold by June-end. The central bank fined 12 lenders — including Citigroup Inc. — a combined 500 billion Nigerian naira for failing to comply with the 60% mandate.

The country's banks have been wary of extending loans to the real economy, following an oil price slump in 2014 and the ensuing recession and currency crisis. Lenders prefer to tie their money up in safer treasury bonds.

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As of Oct. 11, US$1 was equivalent to 361.32 Nigerian naira.