The Central Bank of Nigeria (CBN) on Wednesday announced a reduction in the Loan-to-Deposit Ratio (LDR) of banks in the country to 50 per cent.
The LDR is used to assess a bank’s liquidity by comparing a bank’s total loans to its total deposits within the same period.
According to a circular signed by Adetona Adedeji, Acting Director of the Banking Supervision Department, the adjustment, mirroring the recent increase in the Cash Reserve Ratio (CRR) for banks, aims to align the LDR policy with the current monetary tightening measures undertaken by the CBN.
“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 apex bank said.
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“Accordingly, the CBN has decided to reduce the LDR by 15 percentage points to 50%, in a similar proportion to the increase in the CRR rate for banks.”
The bank had earlier in February discontinued the daily debit of CRR from bank deposits and adopted a weekly method.
The apex bank in the new circular mandated all banks to maintain this revised LDR threshold. Additionally, they are advised that average daily figures will continue to be the benchmark for assessing compliance.
While stressing the importance of robust risk management practices in lending operations, the CBN has assured that it will closely monitor compliance.
The apex bank said it will continue to monitor compliance, review market developments, and make alterations in the LDR as it deems appropriate.
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