The Central Bank of Nigeria (CBN) has announced a review of the loan-to-deposit ratio (LDR) for banks, from 65 percent to 50 percent.
The aim of the review is to align with the current monetary tightening.
The apex bank disclosed this in a circular on Wednesday titled ‘Re: Regulatory Measures to Improve Lending to the Sector of the Nigerian Economy’.
LDR is used to assess a bank’s liquidity by comparing its total loans to its total deposits.
“Following a shift in the Bank’s policy stance towards a more contractionary approach, it is imperative to review the loan-to-deposit ratio (LDR) policy to align with the current monetary tightening by the CBN.
“Accordingly, the CBN has decided to reduce the LDR by 15 percentage points to 50%, in a similar proportion to the increase in the CRR rate for banks.
It stated that DMBs are required to maintain this level and are further advised that average daily figures shall continue to be applied to assess compliance.
“While DMBs are encouraged to maintain strong risk management practices regarding their lending operations, the CBN shall continue to monitor compliance, review market developments, and make alterations in the LDR as it deems appropriate.”
On February 2, the CBN announced that it would stop the daily cash reserve ratio (CRR) debits of deposits in commercial banks.
The CRR is one of the monetary policy tools the CBN uses to limit the circulation of money or supply in the economy as the bank’s liquidity drops.