SME Lending: CBN Retains Banks’ Loan-Deposit Ratio At 65 Percent

The Central Bank of Nigeria (CBN) has retained the loan-deposit ratio of banks at 65 percent, citing rising real sector loans by banks.
The January 7, 2020 CBN circular sent to banks by Ahmad Abdullahi, Director of Banking Supervision, titled: ”Re: Regulator Measures to Improve Lending to the Real Sector of the Nigerian economy”, says: “The Central Bank of Nigeria’s (CBN) regulator directives contained in its circulars dated July 3, 2019, ref. BSD/DIR/GEN/MDD/O1/)45 and September 30, 2019 ref. BSD/DIR/GEN/LAB/12/049 refers.
“The CBN has noticed remarkable increase in the size of gross credit by the deposit money banks (DMB) to customers. Accordingly, the CBN has decided to retain the minimum 65 percent loan deposit ratio (LDR) in the interim. All DMBs are required to maintain this level and are further advised that average daily figures shall be applied to assess compliance going forward.
“The incentives which assign a weight of 150 percent 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 of 50 percent of the lending shortfall of the target LDR on or before March 31, 2020. DMBs are further encouraged to maintain strong risk management practices regarding their lending operations.”
The CBN, in raising the loan to deposit ratio of banks from 60 to 65 percent in October 2019, gave December 31, 2019 as the deadline for compliance. At the expiration of that deadline, the CBN held the rates constant and promised further reward to banks that improved lending to MSMEs.