CBN reduces bank’s LDR to 50% to improve real sector lending

The Central Bank of Nigeria (CBN) has reduced the loan-to-deposit ratio (LDR) of deposit money banks from 65 percent to 50 percent.

This is according to a letter by Dr. Adetona Adedeji, CBN’s Acting Director, Banking Supervision Department, addressed to all banks.

Adedeji said that the reduction was in similar proportion to the cash reserve ratio of banks, which is 45 percent.

He said that the directive was part of measures to deepen monetary policy tightening and improve lending in the real sector of the economy.

“Following a shift in policy stance towards a more contractionary approach, it is imperative for the LDR policy to align with the current monetary tightening of the CBN.

“Accordingly, the CBN has decided to reduce the LDR by 15 percentage points to 50 percent, in a similar proportion to the increase in CRR rates for banks.

“All deposit money banks are required to maintain this level and are further advised that average daily figures will continue to be applied to access compliance,” he said.

He encouraged the deposit money banks to maintain strong risk management practices regarding their lending operations.

Adedeji said that the CBN would continue to monitor compliance, review market developments, and make alterations to the LDR as it deems appropriate.

Supreme News reports that under the new directive, deposit money banks are now allowed to lend 50 percent of their deposits to their customers.