CBN Cuts DMBs Loans-to-Deposit Ratio To 50%

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The Central Bank of Nigeria (CBN) has announced a scale down of the Loans to Deposit Ratio, (LDR) by 15.0 points to 50per cent, reversing previous threshold set by the past CBN administration in January 2020.

The move CBN is to improve banks lending to the real sector.

This significant policy adjustment, effective immediately, is a strategic move aligning with the CBN’s recent shift towards a more contractionary monetary approach, in sync with heightened Cash Reserve Ratio (CRR) requirements, which have been raised to 45per cent for DMBs and 14per cent for merchant banks.

The new directive signed by Acting Director of the Banking Supervision Department, CBN, Dr Adetona Adedeji and titled ‘RE: Regulatory Measures to Improve Lending to the Real Sector of the Nigerian Economy’ is a follow-up to a circular released on January 20, 2020.

 

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It underlines the CBN’s ongoing commitment to refining its regulatory framework in response to evolving economic conditions.

 

The circular read: “The Central Bank of Nigeria’s (CBN) regulatory directive on the above subject dated January 20, 2020, referenced BSD/DIR/GEN/LAB/12/070 refers.

 

“Following a shift in the Bank’s policy stance towards a more contractionary approach, it is imperative to review the loan-to-deposit ratio (LDR) policy to align with the current monetary tightening by the CBN.

 

“Accordingly, the CBN has decided to reduce the LDR by 15 percentage points to 50per cent, in a similar proportion to the increase in the CRR rate for banks. All DMBs are required to maintain this level and are further advised that average daily figures shall continue to be applied to assess compliance.

 

“While DMBS are encouraged to maintain strong risk management practices regarding their lending operations, the CBN shall continue to monitor compliance, review market developments, and make alterations in the LDR as it deems appropriate.”

 

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