The Central Bank of Nigeria (CBN) has reduced the Loan to Deposit Ratio, LDR of banks to 50 per cent from 65 percent.
The reduction was announced via a circular to Deposit Money Banks (DMBs) titled “Re: Regulatory Measures to Improve Lending to the Real Sector of the Nigerian Economy”.
The circular was signed by Acting Director, Banking Supervision Department, CBN, Mr. Adetona Adedeji.
In a bid to increase lending to the economy especially Small and Medium Enterprises, SME, retail mortgage and consumer loans,
the CBN on July 3, 2019 increased Banks’ LDR to 60 per cent from 57 percent. The LDR was further raised to 65 per cent in January 20020.
The reduction in the LDR according to analysts at Afrinvest Securities is to allow banks to comply with the Cash Reserve Ratio, CRR of 45 per cent.
They said, “Today, the CBN in a circular to Deposit Money Banks titled “Re: Regulatory Measures to Improve Lending to the Real Sector of the Nigerian Economy” announced a scale down of the Loans to Deposits Rate (LDR) by 15.0ppts to 50.0% – reversing previous threshold set by the past CBN administration in January 2020.
“In our view, this downward review of LDR allows banks to comply with the 45.0% CRR directive, and eases off pressure on the lenders considering the restrictive nature of other CBN directives including the Net Open Position (NOP) ceiling of 20.0% short and 0.0% long. Thus, we believe this policy would enhance the ability of banks to sweat out assets without creating unnecessary risks.”
