Omodele Adigun
As the Central Bank of Nigeria (CBN) noticed a remarkable increase in the size of credit to customers, the apex bank has decided to retain the 65 per cent Loan Deposit Ratio(LDR) for the first quarter of the year.
According to its Director of Banking Supervision, Ahmed Abdullah, who disclosed this in a circular to all banks, “the incentive, which assigns a weight of 150 per cent 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 (CRR) of five per cent of the lending shortfall of the target LDR on or before March 31, 2020.”
Last October, before raising the LDR to 65 per cent, the apex bank sanctioned 12 banks by debiting N499 billion from their CRR for failing to give out 60 per cent of their deposits as loans. The CRR is a portion of the banks’ deposits kept with the CBN for regulatory reasons.
In July, the CBN had increased the loan to deposit ratio to 60 per cent, saying: “Failure to meet the above minimum LDR by the specified date shall result in a levy of additional CRR equal to 50 per cent of the lending shortfall of the target LDR”.
The CBN said the newly revised LDR is informed by the noticeable growth in the level of the industry gross credit.
According to data provided by the CBN, the credit provided to businesses increased by N829.40 billion between the end of May and September 26.
The LDR policy is expected to encourage lending to small businesses and reduce banks’ appetite for investing in government securities like treasury bills. Last month, the CBN Director of Banking Supervision Department, Mr. Hassan Bello, while speaking at the 2019 workshop for Finance Correspondents and Business Editors in Yola, Adamawa State, said that by next year (2020), the LDR would be raised to 70 per cent.
“This is to encourage employment. Now, we are thinking of doing 70 per cent by the end of next year. Within the period that we have increased the LDR, industry lending has increased by over N1.1trillion,” he said.