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In a move to further tighten monetary policy, the Central Bank of Nigeria (CBN) has announced a significant reduction in the Loan-to-Deposit Ratio (LDR) for commercial banks from 65% to 50%.
This regulatory adjustment mandates that Deposit Money Banks (DMBs) can now lend only up to 50% of their deposits to customers. The directive, which came into effect on April 17, 2024, was communicated through a circular with reference number BSD/DIR/PUB/LAB/017/005, signed by CBN Acting Director of Banking Supervision, Adetona Adedeji.
According to the circular, this measure aligns with the CBN’s shift towards a more contractionary monetary stance, necessitating a recalibration of the loan-to-deposit framework.
“All DMBs are required to comply with this revised LDR,” the directive states. “The CBN will use average daily figures to assess compliance and ensure that banks adhere to this new limit.”
Adedeji emphasized the importance of banks maintaining stringent risk management practices in their lending operations. He added that the CBN is dedicated to ongoing monitoring of compliance to ensure the effectiveness of this policy change.
The reduction in the LDR is designed to influence the banking sector significantly and, by extension, the broader Nigerian economy, aiming to stabilize the financial system by curbing excessive lending.
“This policy adjustment is critical in reinforcing the CBN’s monetary tightening efforts, complementing the recent increases in the Cash Reserve Ratio (CRR) for banks,” Adedeji remarked.
He concluded by urging all banks to take note of these changes and adjust their lending strategies accordingly, reiterating the central bank’s commitment to closely monitoring the situation and adjusting policies as market conditions dictate.
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