CBN retains Loan to Deposit Ratio at 65% 

The Central Bank of Nigeria (CBN) has retained the Loan to Deposit Ratio (LDR) at 65% in the interim against the widely projected percentage (70%) for 2020. This was disclosed via a circular issued to banks on January 7, 2020.

The apex bank regulator, in the circular titled, “Regulatory Measures to Improve Lending to the Real Sector of the Nigerian Economy”, and signed by its Director, Banking Supervision Department, Ahmad Abdullahi, cautioned banks against violating the LDR. adding that compliance going forward would be assessed on a daily basis through daily figure averages.

The CBN stated that it had noticed a remarkable increase in the size of total credit by banks to customers, and accordingly it had decided to retain the minimum 65% LDR in the interim. It added that all commercial banks in the country were required to maintain this level.

Meanwhile, the CBN also stressed that the incentives, which assigned a weight of 150% in respect of lending to the Small and Medium Enterprises, retail, mortgage, and consumer lending, would continue to apply, and warned that failure to achieve the target would continue to attract a levy of additional Cash Reserves Requirements of 50% of the lending shortfall of the target LDR on or before March 31, 2020.

As earlier published by Nairametrics, the CBN had on July 3, 2019, initially directed banks to maintain a minimum LDR of 60% from 58.5% on or before September 30, 2019. After that, the CBN went ahead to review the LDR to 65% in October 2019, setting a new deadline for compliance to December 31, 2019.

[READ MORE: CBN provides guidelines to address credit, liquidity risks, others)

Meanwhile, the apex bank encouraged banks to maintain strong risk management practices regarding their lending operations, adding that it shall continue to monitor compliance, review market development and make further alterations in the LDR as it deems appropriate.

Upshot: As recently published by Nairametrics, the private sector was getting the necessary financing it needed to foster the growth of the economy, as banks’ loans to private sector had been on the rise. This is suspected to be driven by the increase in LDR.