The Central Bank of Nigeria (CBN) has announced a 15% reduction of the loan-to-deposit ratio (LDR) policy for Deposit Money Banks (DMBs) to 50%. This was disclosed in a circular titled: ‘Re: Regulatory Measures to Improve Lending to the Sector of the Nigerian Economy’, signed by Adetona Adedeji, the acting director of the banking supervision department on Wednesday, April 17, 2024....CONTINUE READING
According to the apex bank, the decision followed a shift in its policy stance towards a more contractionary approach.
CBN circular read:
“The Central Bank of Nigeria’s (CBN) regulatory directive on the above subject dated January 20, 2020, referenced BSD/DIR/GEN/LAB/12/070 refers.
“Following a shift in the Bank’s policy stance towards a more contractionary approach, it is imperative to review the loan-to-deposit ratio (LDR) policy to align with the current monetary tightening by the CBN.
“Accordingly, the CBN has decided to reduce the LDR by 15 percentage points to 50%, in a similar proportion to the increase in the CRR rate for banks. All DMBs are required to maintain this level and are further advised that average daily figures shall continue to be applied to assess compliance.
“While DMBS are encouraged to maintain strong risk management practices regarding their lending operations, the CBN shall continue to monitor compliance, review market developments, and make alterations in the LDR as it deems appropriate.”
What does it mean to borrowers?
With this reduction, all deposit money banks are restricted in their ability to offer credits/ loans to businesses and individuals.
Many small and medium business owners will now find it difficult to secure loans as banks will become more circumspect on loan requests.
CBN, on the other hand, hopes that its decision will safeguard the financial system against undue risk exposure.
Nigerian banks adjust rate for loan
Earlier, Legit reported that after the CBN raised the benchmark interest rate, banks repriced their assets, meaning customers would have to pay more for borrowing money.
As a result, the cost of loans, mortgages, and other credit products has increased.
Recall that the CBN raised the monetary policy rate (MPR) on February 27, 2024, from 18.75% in July 2023 to 22.75%, a 400 basis point rise.
