CBN reduces commercial banks access to loans by 50%

Mayowa DurosinmiApril 17, 20241 Mins read120

The Central Bank of Nigeria (CBN) has reduced the loan-to-deposit ratio (LDR) for commercial banks from 65% to 50% as a means to align with its monetary tightening policy.

In a letter signed by the Acting Director of the CBN’s Supervision Department, Mr Adetona S. Adedeji stated, “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 letter was in response to a directive issued on January 7, 2020, which mandated regulatory measures to improve lending to the real sector of the Nigerian economy.

The CBN’s continuation of monitoring compliance and review of market developments have resulted in alterations in the newly issued letter regarding the LDR from 65% to 50%.

Meanwhile, in another letter, the CBN recently increased the Bank’s cash reserve requirement (CRR) – the share of deposits that commercial banks must hold with the apex bank from 27.5% to 32.5%.

Reducing the LDR in proportion to the CRR rise indicated the apex bank’s desire to get a hold of the growing concern of naira in the macro economy, including the accelerating inflation and naira-to-dollar pressure it faces.

However, what this means to borrowers is that, with the reduction in LDR, all deposits of money in commercial banks are restricted in the ability to offer credit/loans to businesses and individuals.

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