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The Central Bank of Nigeria (CBN) has issued a circular mandating commercial banks operating in the country to lend out up to 60% of their customer deposits. The Governor of the apex bank, Godwin Emefiele, had informed attendees at the 2019 Africa Investors’ Conference (AIC) which took place in London between June 25 and 27 of his plan to issue this regulation.

Order from above:  In military fashion, the Central Bank ordered all banks to maintain a minimum loan to deposit ratio of 60% by September 2019. The ratio will be reviewed quarterly.

To determine the 60% ratio, the CBN will assign SME, Mortgage, Retail and Consumer lending a combined weighting of 150%.

The CBN also said that banks that fail to meet this requirement would risk seeing their cash reserve ratios increase to 50%. This means 50% of a bank’s deposit will be immediately sent to the CBN.

[READ: CBN mandates microfinance banks to get 64 new customers per month]

Current data: According to the data released in March by the Nigerian Bureau of Statistics (NBS), Nigerian banks currently have non-performing loans of about N1.69 trillion (N2.19 trillion as at April 2018). The data also revealed that commercial banks had a total deposit of about N27 trillion out of which about N15 trillion or 55.5% was money lent to the private sector.

What this means: In an article published on Nairametrics, we reported that the CBN Governor revealed that the apex bank would issue a circular that would address the paucity of loans available to the private sector.

We also reported in the article that he blamed the inability of banks to lend to the private sector on the latter’s choice of investing in risk-free securities rather than lending to the real sector of the economy. The immediate implication of this is that rather than engaging in moral suasion, banks are now being forced to lend money to sectors of the economy where risks are higher.  In fact, just about anyone could get a loan at this rate.

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The future implications are that banks will be exposed to higher loan losses which could impact significantly on their profitability. They will also have to invest heavily on strategies that can help mitigate against lending risk, thus increasing their cost to income ratios.

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Quick Loan Banks relying on FinTech to drive consumer lending will as well face increasing competition from bigger commercial banks.

The CBN’s target appears to be the informal sector of the economy. Unfortunately, most of the players have projects or funding requirements that are hardly bankable, either because of lack of adequate collateral or evidence of steady cash flows.


On the other hand, if the CBN achieves its aim, it will be a major boost for credit rating agencies who are increasingly pivotal to lending beyond collaterals.

[READ ALSO: Emefiele unveils 5-year plan, targets double digit growth]

The other positives of the CBN’s directive: On the flip side, companies with strong cash flows and collateral will have significantly higher chances of obtaining loans.

It could be a major boost for Nigeria’s real estate sector which has been wallowing in negative GDP growth rates and only able to eke out a growth rate of 0.23% in the first quarter of this year.


Also, home buyers with good jobs may easily secure mortgages as more banks will consider this a better lending option, since the loans will be secured against the property.

Feedback: Initial reactions from banks who received the circular suggest that they were shocked. Though they understood that Godwin Emefiele could be a hard nut, this is one regulation too much for them. Some claimed that two months is too short for them to start complying with the directive.


[YOU SHOULD ALSO READ: FG to recover $7 billion bailout fund from commercial banks]



  1. Really nice development if you ask me. We’re looking at c. N1.3 trn that could leave government securities to become real sector loans.

    If I may, I’d like to point out an observation in the article.

    You wrote that if a bank didn’t meet up with the LDR target of 60%, it’s CRR would be raised to 50%.

    That’s not quite what the directive states.

    Also, you perhaps implied that the directive was compelling banks to do more of the higher-risk retail lending. It isn’t exactly true.

    Let’s put in numbers to clarify:

    So you’re bank XYZ and with the license you got from the CBN, you have a deposit of N 1trn.

    For security reasons, you’re expected to keep N225bn with the CBN as CRR.

    Now with this new policy, You’re also expected to lend out N 600bn of the remaining N775bn to the real sector.

    Now if hitherto, you’ve only lent out N400bn, and kept N375bn in T-bills, this new directive states that you have an LDR shortfall of N200bn (600bn target-400bn actual). Now they won’t force you to increase your lending, they will only take 50% of that 200bn shortfall off your books as additional CRR, taking your CRR to N325bn, with you having just a Max of N275bn (against the old N375bn) to now stash in T-bills. So your new CRR effectively becomes 32.5% and not 50%.

    However, if out of your N400bn lending, N200bn is done to retail, mortgage and SMEs, the CBN assigns that N200bn a 150% weighting meaning that they count it as N300bn, and then see your total lending as N500bn, even though it’s just N400bn, that means your LDR shortfall is no longer reckoned to be N200bn rather it’s now N100bn.
    So, they’re only incentivising banks to lend to these sectors and not exactly forcing them.

    Again, I’d say kudos to them for such a beautiful policy. Only downside is it may be less likely for that N3 dividend I’m counting on ZENITHBANK for to happen.

    Sorry for the length.


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