CBN to raise banks’ loan to deposit ratio to 70%

The Deputy Director, Financial Policy & Regulation Department, Central Bank of Nigeria (CBN), Hassan Mahmoud, has disclosed that the CBN will increase the minimum Loan to Deposit Ratio (LDR) of banks to 70 per cent by 2020.

He disclosed this while speaking at the 2019 workshop for Finance Correspondents and Business Editors organised by the Nigeria Deposit Insurance Corporation, (NDIC) in Yola, Adamawa State.

The CBN in a bid to boost lending to the private sector,especially the small and medium enterprises (SMEs),introduced 60 percent minimum Loan to Deposit ratio for banks in May.

With December 31st 2019 as deadline for compliance, the CBN further increased the ratio to 65 per cent in September.

Bello stated that “The CBN increased the minimum loan-to-deposit ration to encourage banks to lend and de-risk the real sector, particularly the SMEs. This is to encourage employment. Now, we are thinking of doing 70 per cent by the end of next year. Within the period that we have increased the LDR, industry lending has increased by over N1.1 trillion.”

He said the measure has enhanced credit into the economy.

The CBN has also introduced the Global Standing Instruction (GSI) to complement the minimum LDR directive; this allows banks to use funds of a loan defaulting customer in any other bank, to settle his/her loan obligation. He stated further: “What we also did in the system to strengthen banking system stability, is the fact that so long as you are owing a bank, let us say you have N1 billion in one bank and you went to another bank to borrow N1.5 billion and you leave that to go to another bank to borrow another N1 billion, without paying the loans you collected, the new policy is that as long as you default, where you have money in any bank, the bank you are owing can take the money in any of your account that you have money. You would have been made to sign the agreement before taking the loan. That is one of the measures to guard against risk in the system.