- Banks’ Deposit With Central Bank Declined by 68%
The 60 percent loan-to-deposit ratio policy of the Central Bank of Nigeria has helped bolstered credit facility to the real sector and reduce banks’ deposit with the apex bank through the Standing Deposit Facility.
A recent data showed banks’ deposit with the central bank declined by 68 percent in the first nine months of the year as banks strive to meet the 60 percent loan-to-deposit ratio directive.
Banks’ deposit with the central bank declined from N30.4 trillion in the same period of 2018 to N9.7 trillion in the first nine months of 2019, representing a decline of 68 percent.
Also, banks’ credit to the private sector surged by 2.65 percent to N15.13 trillion during the same period. Suggesting that the central bank’s 60 percent loan-to-deposit ratio is effective.
Last week, the apex bank announced it has raised the loan-to-deposit ratio to 65 percent to further improve lending to the private sector and increase new job creation.
Banks are expected to meet the new directive by December 31, 2019.
Mr. Moses Ojo, the Head of Research, Pan African Capital Holdings Limited, said because banks were aware of the proposed LDR policy, they were able to adjust accordingly.
He said, “Banks were aware of the CBN plans to introduce 60 percent LDR policy this year. As a result of that, they needed the money to lend to the real sector and meet the benchmark. Before now, banks were facing Cash Reserve Ratio of 22.5 percent. If you combine the CRR and 60 per cent LDR, there is no way the SDL of the CBN will not reduce.”
He also noted that the reduction in deposit with the central bank will boost private sector funding and subsequently enhance job creation.
He said, “There will be more funds going into agriculture, manufacturing, the Small and Medium Enterprises, oil and gas, among others. This is expected to drive growth in the real sector.”
