CBN directs banks to raise loan-to-deposit ratio

The Central Bank of Nigeria (CBN) has ordered commercial banks to raise their Loan-to-Deposit Ratio (LDR) from 60 to 65 percent before December 31, 2019. understands that the directives were given in letter signed by the Director of Banking and Supervision of CBN, Bello Hassan, to reporters on Tuesday.

The letter noted that the credit level in the sector grew by N829.4bn or 5.33 percent at the end of May from N15.56tn to N16.39tn as of September 26.

“The Central Bank of Nigeria has noted the appreciable growth in the level of the industry growth credit, which increased by N829.4bn or 5.33 percent from N15.56tn at the end of May 2019 to N16.39tn as at September 26, 2019, following its pronouncement on the above initiative,” the letter reads.

“In order to sustain the momentum and in line with the provisions of our earlier letters, the minimum Loan to Deposit Ratio target for all Deposit Money Banks is hereby reviewed upwards from 60 percent to 65 percent.

“Consequently, all DMBs are required to attain a minimum LDR of 65 percent by December 31, 2019, and this ratio shall be subject to quarterly review. To encourage Small and Medium Enterprises, retail mortgage and consumer lending, these sectors shall be assigned a weight of 150 percent in computing the LDR for this purpose.

“Failure to meet the above minimum LDR by the specified date shall result in a levy of additional Cash Reserve Requirement equal to 50 percent of the lending shortfall implied by the target LDR.

“DBN are required to continue to strengthen their risk arrangement practices particularly with regard to their lending operations,” the letter from the apex bank reads.

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