Commercial banks’ Loan-to-Deposit Ratio has been slashed by the Central Bank of Nigeria from 65% to 50% as part of its efforts to strengthen its monetary policy.
This adjustment means that Deposit Money Banks will now only be allowed to lend up to 50% of their deposits to customers.
In a recent directive issued on April 17, 2024, with reference number BSD/DIR/PUB/LAB/017/005 and signed by the Acting Director of Banking Supervision at CBN, Adetona Adedeji, the apex bank announced the reduction of the Loan-to-Deposit ratio to 50% by 15 percentage points.
All Deposit Money Banks are now required to comply with this updated LDR. The CBN has specified that average daily figures will be used to assess adherence to this directive.
Additionally, while encouraging DMBs to uphold strong risk management practices in their lending operations, the CBN has reiterated its commitment to continuously monitor compliance with the directive.
Adedeji has urged all banks to acknowledge these changes and make necessary adjustments to their operations in accordance with the directive.
He emphasized that the regulatory change is expected to have a significant impact on the banking sector and the broader Nigerian economy.
Part of the circular stated, “Due to a shift in the Bank’s policy stance towards a more contractionary approach, it is essential to amend the loan-to-deposit ratio policy to align with CBN’s current monetary tightening.
“As a result, CBN has decided to lower the LDR by 15 percentage points to 50%, in line with the increase in the CRR rate for banks.
“All DMBs must maintain this level, and it is recommended that average daily figures continue to be used for compliance evaluation.
“While DMBs are advised to maintain robust risk management practices in their lending operations, the CBN will persist in monitoring compliance, assessing market developments, and making necessary adjustments to the LDR. Please adhere accordingly.”