The Central Bank of Nigeria (CBN) has revised the loan-to-deposit ratio (LDR) for deposit money banks (DMBs) , reducing it from 65 percent to 50 percent in line with current monetary tightening measures.
The LDR serves as a gauge of a bank’s liquidity, comparing its total loans to total deposits. While a higher LDR enables banks to extend more credit, a decrease limits their ability to lend from depositors’ funds.
The apex bank recently disclosed this in a circular titled ‘Re: Regulatory Measures to Improve Lending to the Nigerian Economy Sector’, issued by Mr. Adetona Adedeji, Acting Director of the Banking Supervision Department.
“The CBN’s policy stance has shifted towards a more contractionary approach, necessitating a review of the loan-to-deposit ratio (LDR) policy to align with current monetary tightening,” stated the apex bank.
Consequently, the CBN has decreased the LDR by 15 percentage points to 50 percent, mirroring the increase in the Cash Reserve Ratio (CRR) rate for banks.
All DMBs must adhere to this level, with average daily figures used to assess compliance. While emphasising strong risk management practices, the CBN will continue monitoring compliance, reviewing market dynamics, and adjusting the LDR as necessary.
