By Tony Obiechina, Abuja
The Central Bank of Nigeria has announced a review of the loan-to-deposit ratio (LDR) for banks, from 65 percent to 50 percent to align with the current monetary tightening.
LDR is used to assess a bank’s liquidity by comparing its total loans to its total deposits.
An increase in the loan-to-deposit ratio allows banks to expand their credits to businesses and individuals, however, a decline in LDR reduces their ability to loan customers from depositors’ funds.
CBN disclosed the increase in a circular on Wednesday titled ‘Re: Regulatory Measures to Improve Lending to the Sector of the Nigerian Economy’, signed by Adetona Adedeji, its acting director of the banking supervision department.
“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,” the apex bank said.
“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. READ ALSO:
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“All DMBs are required to maintain this level and are further advised that average daily figures shall continue to be applied to assess compliance.”
At the last monetary policy committee (MPC) meeting on March 26, the CBN retained the CRR at 45 percent and the liquidity rate at 30 percent.
