The Central Bank of Nigeria (CBN), has mandated deposit money banks in the country to give out 60 per cent of their deposits as loans.
In a letter to banks, the apex bank warned that lenders that fail to comply with the directive would have their cash reserve ratios increased.
Cash reserve ratio is the share of customers deposit that is kept with the CBN at any given time.
According to the letter, which was signed by Ahmad Abdullahi, director of banking supervision, the purpose of the directive is to grow the economy by improving investments in the real sector.
“To encourage lending to small businesses and consumers and more mortgages, these sectors shall be assigned a weight of 150 per cent in computing the LDR,” the letter read.
“Failure to meet the above minimum LDR by the specified date shall result in a levy of additional Cash Reserve Requirement equal to 50 per cent of the lending shortfall of the target LDR.”
The CBN has been making effort to improve lending to the real sector in the hope it will spur economic growth.