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CBN Raises Banks’ Loan To Deposit Ratio From 60% to 65%

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The Central Bank of Nigeria has made an upward review of the Loan to Deposit Ratio of Deposit Money Banks (DMBs) to 65% from the initial 60%.

This was announced by the apex bank as it directed all banks to meet the requirement by December 31, 2019 adding that the ratio would be subject to quarterly review.

The CBN noted that the credit level in the sector grew by N829.4bn or 5.33 percent at the end of May from N15.56tn to N16.39tn as of September 26.

A letter signed by the Director of Banking and Supervision, Bello Hassan, to all banks on, ‘Regulatory measures to improve lending to the real sector of the Nigerian economy’ reads: “The Central Bank of Nigeria has noted the appreciable growth in the level of the industry growth credit, which increased by N829.4bn or 5.33 per cent from N15.56tn at end of May 2019 to N16.39tn as at September 26, 2019 following its pronouncement on the above initiative.

“In order to sustain the momentum and in line with the provisions of our earlier letters, the minimum Loan to Deposit Ratio target for all Deposit Money Banks is hereby reviewed upwards from 60 per cent to 65 per cent.

“Consequently, all DMBs are required to attain a minimum LDR of 65 per cent by December 31, 2019 and this ratio shall be subject to quarterly review. To encourage Small and Medium Enterprises, retail mortgage and consumer lending, these sectors shall be assigned a weight of 150 per cent in computing the LDR for this purpose.

“Failure to meet the above minimum LDR by the specified date shall result in a levy of additional Cash Reserve Requirement equal to 50 per cent of the lending shortfall implied by the target LDR.

“DBN are required to continue to strengthen their risk arrangement practices particularly with regard to their lending operations,” the letter read.

The apex bank added that it would continue to review developments in the market with a view to facilitating greater achievement in the real sector of the Nigerian economy, while providing a safe, sound and resilient financial system.

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