CBN Slashes Banks’ Loan Deposit Ratio To 50%

The Central Bank of Nigeria (CBN) has reduced the Loan-to-Deposit ratio (LDR) for banks from 65 percent to 50 percent.

The reduction was announced via a circular to Deposit Money Banks titled “Re: Regulatory Measures to Improve Lending to the Real Sector of the Nigerian Economy”.

This was contained in circular signed by Acting Director, Banking Supervision Department, CBN, Mr. Adetona Adedeji.

To bolster lending to various sectors of the economy, including Small and Medium Enterprises (SMEs), retail mortgages, and consumer loans, the CBN raised Banks’ Loan to Deposit Ratio (LDR) from 57 percent to 60 percent on July 3, 2019. This ratio was then further elevated to 65 percent in January 2020.

The reduction in the LDR, according to analysts at Afrinvest Securities, is to allow banks to comply with the Cash Reserve Ratio (CRR) of 45 per cent.

They said, “Today, the CBN in a circular to Deposit Money Banks titled “Re: Regulatory Measures to Improve Lending to the Real Sector of the Nigerian Economy,” announced a scale down of the Loans to Deposits Rate (LDR) by 15.0ppts to 50.0% – reversing previous threshold set by the past CBN administration in January 2020.

“In our view, this downward review of LDR allows banks to comply with the 45.0% CRR directive and eases off pressure on the lenders considering the restrictive nature of other CBN directives including the Net Open Position (NOP) ceiling of 20.0% short and 0.0% long. Thus, we believe this policy would enhance the ability of banks to sweat out assets without creating unnecessary risks.”