CBN Reduce Commercial Bank's Loan-to-Deposit Ratio to 50%

In implementing measures to assist the current monetary tightening policy, the Central Bank of Nigeria (CBN) has reduced commercial banks' Loan-to-Deposit Ratio from 65% to 50%.

With this in place, Deposit Money Banks can lend only 50% of their deposit to customers.

The apex bank issued this new directive on April 17, 2024, with reference number BSD/DIR/PUB/LAB/017/005 and signed by the CBN Acting Director of Banking Supervision, Adetona Adedeji. The apex bank reported that it had reduced the Loan-to-Deposit ratio by 15% points, down to 50%.

All Deposit Money Banks are currently mandated to adhere to this revised LDR. The CBN has stated that average daily figures will be used to gauge compliance with this directive.

Additionally, while DMBs are encouraged to maintain robust risk management practices in their lending activities, the CBN said it was committed to continuously monitoring compliance with the directive, a report stated.

Adedeji has also called on all banks to acknowledge these modifications and adjust their operations accordingly.

He emphasised that the regulatory adjustment would significantly influence the banking sector and the Nigerian economy.

The circular stated, "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.