Are you wondering how to get a Loan from CBN or your bank with a low-interest rate and enough time to pay back? You’re in the right place. Please make sure you read this report till the end! I have a Surprising Information for you at the end of the report!
WHY NOW? WHAT’S NEW?
You may be wondering what’s suddenly different now from the usual disheartening stories of banks not giving out loans and when they do, they often impede the process with what appears to be unnecessarily difficult requirements and documents. In truth, these difficulties are put there to discourage loans as banks are indeed, unwilling to give them out. The reasons for this may not be far-fetched; the fear of the high rate of defaulters, as well as the high financial risk involved. However, we must admit that most commercial banks are lazy. “How?”, you may ask. I’ll offer a brief explanation before we go into the real meat of this report.
Commercial banks were primarily established to receive deposits in the form of money and give out loans to businesses, SMEs, etc. However, most of the commercial banks seem to be quite sluggish where loans are concerned but prefer to invest these deposits into Government and other low-risk investments like Treasure bills, et al. Government Bonds and treasury bills give them an interest of 12-15% annually and the risk involved is quite low. Sometimes, they also give loans to important personalities such as politicians, as well as some low-risk industries at the expense of funding the SME sector that makes 47.8% of Nigeria’s GDP.
Due to this feet-dragging attitude of the commercial banks, the CBN Governor, Mr. Godwin Emefiele on July 3rd, 2019, directed all Deposit Money Banks (DMBs) to maintain a minimum Loan Deposit Ratio (LDR) of 65% by the end of December 2019. Below is a copy of the document containing this directive to the deposit banks. I’ll be explaining the implications of this directive as you read further.
For better understanding, let’s break down some of the terms used above.
The LDR is the portion of customers’ deposit that is given out as loans while the Cash Reserve Ratio (CRR) represents the share of customers’ deposit that is kept with the central bank. The banks do not earn interest on this money kept, unlike loans. Still confused? Let’s break it down.
LDR is simply the ratio of the bank’s total loans to its total deposits. This means that rather than investing most of the customers’ deposits in Treasury bills and other low-risk investments while ignoring the real sectors of the economy(SMEs), the Deposit Money Banks are being forced by the Central Bank of Nigeria to give out up to 65% of such deposits as loans to SMEs. If they fail to comply, CBN will withdraw 50% of this LDR to be placed in the CRR. This money is taken without interest and is, therefore, a big loss to the commercial banks.
WHAT DOES THIS MEAN FOR YOU?
The Banks are certainly not interested in losing 50% of their LDR to CRR so they have no choice but to give out more loans as directed by the CBN.
Ever wondered why there are so many bank advertisements for loans? You may have received countless text messages imploring you to apply for loans. The above CBN directive explains it all. Notwithstanding, banks will not give loans to just anyone. They will rate your loan offer based on your business plan, the risk involved and your capacity to payback.
Further down in this report, we’ll discuss how banks and CBN intervention loans work and the different types of loans that are a likely fit for your business Idea.
Click the Number 2 Page to find out