CBN Increases Banks Loan-Deposit Ratio to 65% to Encourage Lending

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SWITZERLAND, OCTOBER 02 – The Central Bank of Nigeria(CBN) has increased the Loan-Deposit ratio of Deposit Money Banks(DMB) to 65 per cent.

This was contained in a letter to all banks on Monday, September 30. According to the CBN, the move is to encourage SMEs, Retail, Mortgage, and Consumer lending.

The letter reads,

“The Central Bank of Nigeria (CBN) has noted the appreciable growth in the level of the industry gross credit, which increased by N829.40 billion or 5.33% from N15,567.66 billion at end-May 2019, to N16,397.06 billion as at September 26, 2019, following its pronouncements on the above initiative,” the regulator wrote.

“In order to sustain the momentum and in line with the provisions of our earlier letter, the minimum Loan to Deposit Ratio (LDR) target for all Deposit Money Banks (DMBs) is hereby reviewed upwards from 60% to 65%.” 

The letter added, “All DMBs are required to attain a minimum LDR of 65% by December 31, 2019.” According to the letter, the ratio will be subject to quarterly review, in order to encourage SMEs, Retail, Mortgage, and Consumer Lending. 

The CBN said any bank that failed to meet the stipulated ratio, would be fined half of their shortfall and added that each bank should continue to practice quality risk management, in the face of the increased pressure to give out loans.

This means that banks will be willing to issue out more loans.

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