A towel with a print of the Nigerian naira is displayed for sale at a street market in the central business district in Nigeria's commercial capital Lagos. REUTERS/AKINTUNDE AKINLEYE
A towel with a print of the Nigerian naira is displayed for sale at a street market in the central business district in Nigeria's commercial capital Lagos. REUTERS/AKINTUNDE AKINLEYE

Lagos/Dakar — Citigroup and Zenith Bank face the stiffest penalties among a dozen lenders being punished by Nigeria’s central bank for failing to meet a target to provide more credit.

A combined sanction of 500-billion naira ($1.4bn) has been imposed on the 12 banks, according to a circular sent to the institutions and seen by Bloomberg.

Other Lagos-based lenders such as Guaranty Trust Bank and United Bank for Africa are among those who fell short, as well as the local unit of Standard Chartered, the central bank list shows.

“This is a negative signal to the market because it compels banks to risk assets in an economy where you rarely find viable businesses given the macroeconomic conditions,” said Christian Orajekwe, head of securities trading at Cordros Securities in Lagos.

“This could lead to some credit creation and new jobs in the short term, but in the long term there will be concerns about the performance of those loans. It may not be sustainable,” Orajekwe said.

The banks will have to transfer the funds to non-interest bearing accounts at the central bank.

The penalties come three months after the Central Bank of Nigeria gave lenders until September 30 to boost their loan-to-deposit ratios to 60%. Of the six biggest domestic banks, only the lending unit of Access Bank met the minimum threshold by end-June.

The regulator upped the ante on Monday, giving the lenders until the end of the year to get the target up to 65%. The measure is among a raft of regulations aimed at forcing banks to boost credit — mainly to farmers, small- and medium-sized businesses and consumers — as President Muhammadu Buhari’s administration seeks to reignite economic growth.

A spokesperson for the central bank declined to comment.

The funds will be taken from the cash reserves held with the central bank.

A spokesperson at Standard Chartered in Lagos declined to comment, while calls to representatives at UBA, FBN, GTBank and FCMB were not answered.

The sterilisation of the funds was reported earlier by Business Day, a Lagos-based newspaper.

Bloomberg