CBN retains lending rate, raises banks’ cash reserve ratio

Central Bank of Nigeria (CBN)
Central Bank of Nigeria (CBN)

The first meeting of the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) in 2020 on Friday resolved to leave all but one monetary policy parameter unchanged.

At the end of the rescheduled meeting at the CBN headquarter in Abuja, the MPC opted to retain lending rate, also called monetary policy rate (MPR) at 13.5 per cent, with asymmetric corridor at +200/-500 basis points around the MPR. The liquidity ratio was left at 30 per cent.

The CBN governor, Godwin Emefiele, who presented the communique of the two-day meeting to journalists, said the committee decided to review upwards the cash reserve ratio (CRR) to 27.5 per cent, from 22.5 per cent.

The CRR is the quantum of cash or total deposit of the customers, which commercial banks hold as reserves either in cash or as deposits with the central bank for lending to customers.

READ ALSO: CBN mandates banks to give out more loans

In line with its policy to encourage the banks to make more money from their deposits available for lending to customers, particularly micro, small and medium enterprises (MSMEs), the CBN has reviewed the applicable loans-to-deposit rate (LDR).

Last year, the CBN had reviewed the banks’ LDR twice initially, from about 55 to 60 per cent, and later to 65 per cent.

In justifying the policy review, the CBN said increasing the minimum LDR of commercial banks was aimed at compelling banks to boost their credit capacity, mainly to agricultural entrepreneurs and farmers, small-and-medium-size businesses and consumers.

The LDR, expressed as a percentage, is used to assess a bank’s liquidity by comparing a bank’s total loans to its total deposits for the same period.

If the ratio is too high, it means that the bank may not have enough liquidity to cover any unforeseen fund requirements.

Conversely, if the ratio is too low, the bank may not be earning as much as it could be earning.


Advertisement

PT Mag Campaign AD

Support PREMIUM TIMES' journalism of integrity and credibility

Good journalism costs a lot of money. Yet only good journalism can ensure the possibility of a good society, an accountable democracy, and a transparent government.

For continued free access to the best investigative journalism in the country we ask you to consider making a modest support to this noble endeavour.

By contributing to PREMIUM TIMES, you are helping to sustain a journalism of relevance and ensuring it remains free and available to all.

Donate


TEXT AD: To advertise here . Call Willie +2347088095401...



BE THE FIRST TO KNOW! Subscribe to our newsletter

* indicates required

DOWNLOAD THE PREMIUM TIMES MOBILE APP

Now available on

  Premium Times Android mobile applicationPremium Times iOS mobile applicationPremium Times blackberry mobile applicationPremium Times windows mobile application

All rights reserved. This material and any other material on this platform may not be reproduced, published, broadcast, written or distributed in full or in part, without written permission from PREMIUM TIMES.