We May Alter 65% LDR Target for Banks—CBN

By Adedapo Adesanya

The Central Bank of Nigeria (CBN) has disclosed that it will retain the minimum loan-to-deposit ratio (LDR) for commercial and merchant banks in the country at 65 percent.

However, it emphasised that there could be further alterations in the LDR as it deems appropriate, noting that would continue to monitor compliance and review market developments.

The banking sector watchdog in Nigeria said in a statement by its Director of Banking Supervision, Mr Ahmad Abdullahi, on Tuesday that the policy has helped boost lending to the real sector of the economy, which had before now been starved of cash.

“The CBN has noticed remarkable increase in the size of gross credit by deposit money banks (DMBs) to customers.

“Accordingly, the CBN has decided to retain the minimum 65 percent LDR in the interim. All DMBs are required to maintain this level and are further advised that average daily figures are to be applied to assess compliance going forward,” the statement said.

The apex bank further said the incentive which assigns a 150 percent in respect of lending to Small and Medium scale Enterprises (SMEs), retail, mortgage and consumer lending would continue to apply, while failure to achieve the target would also attract a levy of additional Cash Reserve Requirement of 50 percent of the lending shortfall of the target LDR on or before March 31, 2020.

Commercial lenders were advised to maintain strong management practices in their lending operations.

“The incentive which assigns a weight of 150 percent in respect of lending to SMEs, retail, mortgage and consumer lending shall continue to apply, while failure to achieve the target shall continue to attract a levy of additional cash reserve requirement of 50 percent of the lending shortfall of the target LDR on or before March 31, 2020.

“DMBs (Deposit Money Banks) are further encouraged to maintain strong risk management practices regarding their lending operations.

“The CBN shall continue to monitor compliance, review market developments and make further alterations in the LDR as it deems appropriate,” it said.