- LDR Boosts Credit to Private Sector, CBN Raises it to 65%
Following the effectiveness of the 60 percent loan-to-deposit ratio (LDR) directive on the private sector, the apex bank has now reviewed and raised it to 65 percent to further stimulate growth and enhance job creation in the sector.
In a letter signed by Mr Bello Hassan, the Director of Banking and Supervision, CBN, to all Deposit Money Banks on “Regulatory measures to improve lending to the real sector of the Nigerian economy”, the central bank said the LDR directive boosted credit growth to the private sector by 5.33 percent or N829.4 billion to N16.39 trillion from N15.56 trillion between May 2019 and September 26, 2019.
Therefore, the apex bank reviewed the directive and raised it by 8.33 percent to 65 percent.
“In order to sustain the momentum and in line with the provisions of our earlier letters, the minimum Loan to Deposit Ratio target for all Deposit Money Banks is hereby reviewed upwards from 60 per cent to 65 per cent,” the letter reads.
All Deposit Money Banks are now required to attain a 65 percent Loan to Deposit Ratio by December 31, 2019.
“Consequently, all DMBs are required to attain a minimum LDR of 65 per cent by December 31, 2019 and this ratio shall be subject to quarterly review. To encourage Small and Medium Enterprises, retail mortgage and consumer lending, these sectors shall be assigned a weight of 150 per cent in computing the LDR for this purpose.”
“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 implied by the target LDR.”
It should be recalled that the CBN gave September 30, 2019 deadline for the full implementation of the 60 percent LDR directive, the new deadline is December 31, 2019.
The CBN said it would continue to monitor market developments and make necessary adjustments to facilitate growth in the real sector of the economy.
Meanwhile, the National Bureau of Statistics (NBS) put the total credit to the private sector in the second quarter of 2019 (April to June) at N15.13 trillion. An increase of 2.65 percent.
The oil & gas sector received 22 percent of total credit issued during the quarter, while the manufacturing sector followed with N15.32 percent.