CBN Crashes Banks’ Loan to Deposit Ratio to 50%

The Central Bank of Nigeria (CBN) has reduced the Loan to Deposit Ratio (LDR) of banks to 50% from 65%.

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”.

The circular was signed by Acting Director, Banking Supervision Department, CBN, Mr. Adetona Adedeji.

In a bid to increase lending to the economy especially Small and Medium Enterprises (SME) retail mortgage and consumer loans, the CBN on July 3, 2019 increased Banks’ LDR to 60% from 57%. The LDR was further raised to 65% 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%.

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% short and 0.0% long. Thus, we believe this policy would enhance the ability of banks to sweat out assets without creating unnecessary risks.”