CBN raise loan as proportion of banks’ deposits to 65%
The apex bank has raised loan to deposit ratio (LDR) in the banking sector to 65% immediately effectively.
This detail is contained in the recent circular sent to deposits money banks (DMBs).
It would be recalled that in the third quarter of 2019, the apex bank had set 60% LDR target for banks having noted that significant numbers of the operators were bearish on credits
The detail was disclosed in the recent circular sent to banks as part of regulatory measure to improve lending into the real sector as signed by the Director of Banking and Supervision, Bello Hassan.
Now, banks must channel 65% of their total deposits collections as loans and advances to the real sector.
The Central Bank of Nigeria (CBN) noted the appreciable growth in the level of the industry gross credit, which increased by N829.40 billion or 5.33% from N15,567.66 billion at end-May 2019, to N16,397.06 billion as at September 26, 2019 following its pronouncements on the above initiative.
The circular reads that in order to sustain the momentum and in line with the provisions of our earlier letter, the minimum Loan to Deposit Ratio (LDR) target for all Deposit Money Banks (DMBs) is hereby reviewed upwards from 60% to 65%.
“Consequently, all DMBs are required to attain a minimum LDR of 65% by December 31, 2019 and this ratio shall be subject to quarterly review.
To encourage SMEs, Retail, Mortgage and Consumer Lending, these sectors shall be assigned a weight of 150% in computing the LDR for this purpose.
“Failure to meet the above minimum LDR by the specified date shall result in a levy of additional Cash Reserve Requirement equal to 50% of the lending shortfall implied by the target LDR.
“DMBs are required to continue to strengthen their risk management practices particularly with regards to their lending operations”,the CBN stated.
The CBN said it would review developments in the market with a view to facilitating greater investment in the real sector of the Nigerian economy whilst promoting a safe, sound and resilient financial system.