CBN Retains 65% LDR To Sustain Gains
UMORU ABDULKADIR
Poised to sustain the gains recorded from the increase in Loan-to-deposit ratio (LDR) to Deposit Money Banks (DMBs) in the country, the Central Bank of Nigeria (CBN) Wednesday announced the retention of the minimum 65 percent Loan to Deposit Ratio (LDR) to assist the economy
The apex bank in a circular to all banks signed by its Director of Banking Supervision, Mr. Ahmad Abdullahi, said that the CBN is in the interim retaining the minimum 65 per cent LDR.
While taking the decision to retain the current LDR, the CBN noted that notable increases have been recorded in the size of gross credit by the Deposit Money Banks (DMBs) to customers, culminating into more than N1trn loans to the customers by the banks in just few months.
The apex bank therefore, urged the banks to sustain and improve on the current level by ensuring that average daily figures were applied to assess compliance.
The CBN further explained that the incentive which assigns a weight of 150 per cent in respect of lending to Small and Medium scale Enterprises (SMEs) Retail Mortgage and Consumer Lending would continue to apply while failure to achieve the target would still attract a levy of additional Cash Reserve Requirement of 50 per cent of the lending shortfall of the target LDR on or before March 31, 2020.
The CBN said it would continue to monitor compliance, review market development and make further alterations in the LDR as it deems appropriate.
CBN introduced the policy in May to tackle loan defaulters and increase lending to the real sector of the economy while maintaining safe and sound financial system, the Central Bank of Nigeria (CBN) in July introduced the Minimum Loan-to-Deposit (LDR) of 60 per cent to all Deposit Money Banks (DMBs) in the country.
Consequent upon Implementation of the policy, the Nigerian economy recorded 5.33 per cent growth in credit to the real sector from N15.57 trillion at the end of May 2019 to N16.40 trillion at the end of September 2019 according to the data released by the CBN recently, as a result of the CBN’s new measures to grow the Nigerian economy through investment in the real sector.
However, many banks failed to meet the 60 per cent LDR target at the end of the earlier set deadline of September 30, 2019 by the apex bank which led to sanctioning of Banks to the tune of N499 billion.
Despite many banks inability to meet the earlier target, the central bank announced an upward review of the country’s loan to deposit ratio (LDR) for banks to 65% from the then 60% due to the successes recorded in lending to the real sector during the targeted period.
Meanwhile, in a circular issued on Monday, September 30th, all banks are directed to meet the new requirements by December 31, 2019 or face sanctions.
“The Central Bank of Nigeria (CBN) has noted the appreciable growth in the level of the industry gross credit, which increased by N829.40 billion or 5.33%.
“In order to sustain the momentum and in line with the provisions of our earlier letter, the minimum Loan to Deposit Ratio (LDR) target for all Deposit Money Banks (DMBs) is hereby reviewed upwards from 60% to 65%.
“Consequently, all DMBs are required to attain a minimum LDR of 65% by December 31, 2019, and this ratio shall be subject to quarterly review,” the statement reads.
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