With LDR at 65%, CBN urges banks to maintain strong risk management practices regarding lending operations

Picture showing Marina CMS where most banks are headquartered
  • CBN retains loan-to-deposit ratio for banks at 65%
  • Ahmad Abdullahi, CBN’s Director of Banking Supervision, says the apex bank decided to the lending ratio because of the remarkable increase in the size of gross credit by the Deposit Money Banks (DMBs) to customers.
  • The banking regulator says it will continue to monitor compliance, review market developments, and make further adjustments in the lending ratio.

The Central Bank of Nigeria (CBN) has advised commercial banks in the country to maintain strong risk management practices in lending while maintaining a loan-to-deposit ratio at 65%.

In a circular issued by Ahmad Abdullahi, Director of Banking Supervision and dated Tuesday, January 7th, 2020, the apex bank said it has decided to retain a minimum of 65% Loan to Deposit Ratio (LDR) in the interim as a result of lending growth in the real sector.

The CBN has noticed a remarkable increase in the size of gross credit by the Deposit Money Banks (DMBs) to customers.

"The incentive which assigns a weight of 150% in respect of lending to SMEs, retail, mortgage, and consumer lending shall continue to apply, while failure to achieve the target shall continue to attract a levy of additional cash reserve requirement of 50% of the lending shortfall of the target LDR on or before March 31, 2020,” the statement reads in part.

The banking regulator said it will continue to monitor compliance, review market developments, and make further adjustments in the lending ratio when appropriate.

In April 2019, the Central Bank of Nigeria (CBN) set at least 60% minimum loan-to-deposit ratio (LDR) for banks to ramp up the Nigerian economy.

By September, the banking regulator said the policy had achieved a 5.33% growth and announced an upward review of LDR for banks to 65%.

The International Monetary Fund (IMF) and other financial agencies have cautioned the CBN that the increased LDR may affect banks' balance sheets.

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