CBN Directs Banks to Give 60% of Deposits as Loans

The Central Bank of Nigeria (CBN) has directed Deposit Money Bank (DMB’s in the country to dole out 60% of deposits as loans.

In a letter addressed to banks, which was signed by the Director of Banking Supervision Ahmad Abdullahi, the purpose of the directive is to grow the economy by improving investments in the real sector.

The apex bank said banks that did not comply with the directive would have their cash reserve ratios increased.

Cash reserve ratio is the share of customer’s deposit that is kept with the central bank.

“To encourage lending to small businesses and consumers and more mortgages, these sectors shall be assigned a weight of 150% in computing the LDR,” the letter read.

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

The bank has been making significant effort to improve lending to the real sector, this it hopes, will spur economic growth.

Loans to Deposit Ratio data was reported at 65.170 % in Sep 2018. This records an increase from the previous number of 58.240 % for Aug 2018. Loans to Deposit Ratio data is updated monthly, averaging 68.940 % from Jan 2007 to Sep 2018, with 141 observations. The data reached an all-time high of 94.010 % in Sep 2009 and a record low of 32.700 % in Aug 2013.

Most Nigerian DMBs currently engage the bulk of the deposits received on trading on fixed income and federal securities.

Also Read: CBN Contemplates Mergers & Recapitalisation of Nigerian Banks