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Economy: CBN reduces banks’ 50 percent Loan-to-Deposit Ratio to enhance lending in real sector

Dr. Olayemi Cardoso, Governor of CBN

*The Central Bank of Nigeria urges the Deposit Money Banks to maintain strong risk management practices regarding their lending operations in the country’s economy

Alexander Davis | ConsumerConnect

As part of measures to deepen monetary policy tightening towards improving real sector lending, the Central Bank of Nigeria (CBN) has reduced the Loan-to-Deposit Ratio (LDR) of Deposit Money Banks (DMBs) from initial 65 percent to 50 percent.

ConsumerConnect reports Dr. Adetona Adedeji, Acting Director of Banking Supervision Department at CBN, noted this in a circular addressed to all commercial banks in the country.

Adedeji noted that the reduction was in similar proportion to the Cash Reserve Ratio (CRR) of banks, which is 45 percent.

By implication, the new directive indicates the commercial banks are now allowed to lend 50 percent of deposits to their customers.

He also stressed the Bankers’ Bank directive was part of measures to extend monetary policy tightening while improving lending in the real sector of the Nigerian economy.

The Bank stated: “Following a shift in policy stance towards a more contractionary approach, it is imperative to 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 the CRR rates for banks.

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

The Acting Director of Banking Supervision further encouraged the banks to maintain strong risk management practices regarding their lending operations.

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

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