As the September deadline for banks to have a minimum Loan to Deposit Ratio of 60 per cent ended this week, the Central Bank of Nigeria has raised the LDR to 65 per cent with a new deadline of December 2019.
The apex bank had set a minimum limit of LDR for commercial banks in the country in July this year with a September 30 deadline in an effort to increase lending to the real sector of the economy. The CBN in letter to all banks, noted the success of the initial deadline.
According to the CBN, there has been an appreciable growth in the level of the industry gross credit, which increased by N829.40 billion or 5.33 per cent from N15.567 trillion at the end of May 2019, to N16.397 trillion as at September 26, 2019 following its pronouncements.
Consequently, it said “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 per cent to 65 per cent.
“All DMBs are required to attain a minimum LDR of 65 per cent by 31, December 2019 and this ratio shall be subject to quarterly review. To encourage SMEs, 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. DMBs are required to continue to strengthen their risk management practices particularly with regards to their lending operations.
“The CBN shall continue to review developments in the market with a view to facilitating greater investment in the real sector of the Nigerian economy whilst promoting a safe, sound and resilient financial system,” the circular read.