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CBN Lowers Banks’ Loan-to-Deposit Ratio to 50%

The Central Bank of Nigeria (CBN) has announced a revision of the loan-to-deposit ratio (LDR) for banks, decreasing it from 65 percent to 50 percent in line with current monetary tightening measures. This adjustment is aimed at managing the money supply in the economy, particularly during periods of liquidity constraints. During its recent monetary policy committee (MPC) meeting on March 26, the CBN kept the Cash Reserve Ratio (CRR) at 45 percent and the liquidity ratio at 30 percent.

The LDR is a key indicator of a bank’s liquidity, comparing its total loans to total deposits. An increase in the LDR allows banks to offer more credit to businesses and individuals, while a decrease limits their lending capacity from customer deposits.

In a circular titled ‘Re: Regulatory Measures to Enhance Lending to the Nigerian Economy Sector,’ signed by the acting director of the banking supervision department, Adetona Adedeji, the CBN announced the reduction, citing a shift in the bank’s policy stance towards a more restrictive approach.

The CBN stressed the importance of all Deposit Money Banks (DMBs) complying with the revised LDR of 50 percent, with daily average figures used for assessing compliance. The central bank stated,

“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.

“All DMBs are required to maintain this level and are further advised that average daily figures shall continue to be applied to assess compliance.”

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