CBN Reduces Banks’ Loan-To-Deposit Ratio To 50%

CBN Reduces Banks’ Loan-To-Deposit Ratio To 50%

The Central Bank of Nigeria (CBN) has announced a reduction in the Loan-to-Deposit Ratio (LDR) of banks from 65% to 50%. This decision, outlined in a circular titled “Regulatory Measures to Improve Lending to the Real Sector of the Nigerian Economy,” aims to enhance lending to sectors such as Small and Medium Enterprises (SMEs), retail mortgage, and consumer loans…….READ ALSO CBN Exchange Rate For Euro, Pounds, And Other Currencies

Initially, the CBN had raised the LDR to 60% in July 2019 from 57% and further increased it to 65% in January 2020. However, the recent reduction is seen as a move to enable banks to comply with the Cash Reserve Ratio (CRR) requirement of 45%.

According to analysts at Afrinvest Securities, this adjustment in the LDR threshold will alleviate pressure on banks, particularly in meeting the CRR directive. They believe that easing the LDR requirement will enable banks to manage their assets effectively without exposing themselves to unnecessary risks posed by other CBN directives, such as the Net Open Position (NOP) ceiling.

Overall, this policy shift is expected to support banks in maintaining compliance with regulatory requirements while fostering lending activities to vital sectors of the Nigerian economy.