CBN’s Directive To Commercial Banks Will Empower Real Sector With Potential Loan Of N1.5tn

The CBN has taken fresh steps to channel more funds, a potential sum of N1.5trillion to the real sector of the economy as loans in order to facilitate the growth of this sector.

Femi Adeoya

July 5, 2019

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CBN’s Directive To Commercial Banks Will Empower Real Sector With Potential Loan Of N1.5tn

Governor of Central Bank of Nigeria (CBN), Mr. Godwin Emefiele, has taken fresh steps to empower the real sector of the economy by channelling more funds to it through the commercial banks.

To this end, the CBN has directed commercial banks to maintain a minimum Loan to Deposit Ratio (LDR) of 60 per cent effective from September 30, 2019.

The new LDR is lower than the 80 per cent it was previously.

The Head of Research and Strategy at FSDH Merchant Bank, Mr. Ayodele Akinwunmi, was quoted by Thisday as saying that the policy would make more money from banks’ customer deposit to be channelled as lending to the real sector of the economy.

According to him, it could unlock over N1.5 trillion for lending to the sector.

The central bank conveyed the decision on the new lending policy to the banks in a July 3, 2019, letter addressed to them, which was signed by the Director of Banking Supervision, CBN, Ahmad Abdullahi.

The LDR is used to assess a bank’s liquidity by comparing a bank’s total loans to its total deposit.

If a bank’s LDR is too high, it may affect its liquidity level and ability to lend.

CBN said in the letter to the banks that the new LDR would be subject to quarterly review.

“To encourage SMEs, retail, mortgage and consumer lending, these sectors shall be assigned a weight of 150 per cent in computing the LDR for this purpose. The CBN shall provide a framework for classification of enterprises/businesses that fall under these categories.

“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 of the target LDR. The CBN shall continue to review development in the market with a view to facilitating greater investment in the real sector of the Nigerian economy,” it said.