CBN retains LDR at 65%, warns against violation

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CBN

The Central Bank of Nigeria has retained the Loan to Deposit Ratio for the banking sector at 65 per cent.

The apex bank said this in a circular issued to the Deposit Money Banks dated January 7, 2020.

The circular with reference number BSD/DIR/GEN/LAB/12/070 was signed by the Director, Banking Supervision Department, CBN, Mr Ahmad Abdullahi.

The CBN had on July 3, 2019, directed banks to maintain a minimum LDR of 60 per cent by September 30, 2019.

The LDR, which is being reviewed quarterly to improve lending to the real sector, was 58.5 per cent as of the end of May.

It was raised to 65 per cent in the fourth quarter of last year.

The apex bank in the circular released on Wednesday warned the DMBs against violating the LDR, adding that average daily figures would be applied to assess compliance going forward.

It said the incentives, which assigned a weight of 150 per cent in respect of lending to the Small and Medium Enterprises, retail, mortgage and consumer lending would continue to apply.

It warned that failure to achieve this target would continue to attract a levy of additional Cash Reserves Requirements of 50 per cent of the lending shortfall of the target LDR on or before March 31, 2020.

It read in part, “The CBN has noticed remarkable increase in the size of gross credit by the DMBs to customers.

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

“The incentives which assign a weight of 150 per cent in respect of lending to the 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 reserves requirement of 50 per cent of the lending shortfall of the target LDR on or before March 31, 2020.”

The CBN encouraged the DMBs to maintain strong risk management practices regarding their lending operations.

The CBN Governor, Godwin Emefiele, had at the Monetary Policy Committee meeting held in November said the LDR which the apex bank imposed on the banks had helped to unlock over N1.16tn funding to the private sector.

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