CBN reduces banks’ loan-deposit ratio to 50%

Onwubuke Melvin
Onwubuke Melvin

The Central Bank of Nigeria has reduced the loan-to-deposit ratio of commercial banks from 65 % to 50 % as part of measures to deepen its monetary tightening policy.

As a result, Deposit Money Banks are now allowed to lend only 50 % of their deposits to their customers, according to The Punch.

This was disclosed in a new directive, issued with reference number BSD/DIR/PUB/LAB/017/005 and signed by the CBN Acting Director of Banking Supervision, Adetona Adedeji on April 17, 2024.

The Central Bank notes that the ratio of loans to deposits has been cut by 15 percentage points, down to 50 per cent.

This revised LDR is now binding on all deposit money banks. The Central Bank has indicated that the measurement of compliance with this Directive will take into account daily averaging figures.

In addition, the Central Bank of Nigeria has stated that it will continue to monitor compliance with the Directive as far as Deposit Money Banks are concerned while encouraging them to maintain strong risk management practices in their lending operations.

Adedeji has urged all banks to acknowledge these modifications and make adjustments in the way they operate.

The circular stated in part, “Following a shift in the Bank’s policy stance towards a more contractionary approach, it is crucial to revise the loan-to-deposit ratio policy to conform with the CBN’s ongoing monetary tightening.

“Consequently, the CBN has decided to decrease the LDR by 15 percentage points to 50 percent, proportionate to the rise in the CRR rate for banks.

“All DMBs must maintain this level, and it is advised that average daily figures will still be applied for compliance assessment.

“While DMBs are urged to sustain strong risk management practices concerning their lending operations, the CBN will persist in monitoring compliance, reviewing market developments, and making necessary adjustments to the LDR. Please be guided accordingly.”

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