The Central Bank of Nigeria (CBN) has updated its Cash Reserve Requirement (CRR) mechanism making Deposit Money Banks (DMBs) with minimum Loans to Deposit Ratio (LDR) below requirement as facing a 50 per cent lending shortfall.
The CBN over the years maintained LDR at 65 per cent with most tier-1 banks failing to comply with the policy.
The policy was set to improve lending to customers to stimulate the real sector of the economy.
It implies that for every N100 received as deposits, the banks are to lend N65 to customers.
The apex bank had in a circular to banks stated that it would resume the enforcement of the LDR policy effective July 31, 2023.
Also, CRR is one of the monetary policy tools the CBN uses to limit the circulation of money or supply in the economy, as banks’ liquidity drops. In the last monetary policy committee (MPC) meeting of the CBN in July 2023, the CRR was retained at 32.5 per cent.
However, the Acting Director of the Banking Supervision Department, CBN, Adetona Adedeji in a circular to all DMBs said, the apex bank is ceasing its daily CRR debits and will be adopting an updated CRR mechanism that is intended to facilitate bank capacity for planning, monitoring and aligning with records with the CBN.
According to him, the determination of the segment of deposits subject to sterilization with the CBN as CRR will follow the processes outlined that “utilization of the incremental Approach: the extant ratios commercial banks 32.5 per cent and merchant banks 10per cent will be applied to increases in the banks weekly average adjusted deposits.”
The second phase is that a “CRR levy of 50 per cent of the lending shortfall will be enforced for banks that do not meet the minimum LDR as per our correspondence to all banks referenced BSD/DIR/GEN/LAB/12/049 dated September 30, 2019.”
He stated that the CBN will provide the bank with details of the applied charges and their underlying computation rationale.
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