CBN Slashes Access, UBA, Zenith, GTB, Other Banks' Ability to Give Loans to Customers, Gives Reasons

• The CBN has reduced the loan-to-deposit ratio policy for deposit money banks to align with its current monetary tightening
• With this reduction, all deposit money banks are restricted in their ability to offer credits/loans to businesses and individuals
• CBN hopes the policy adjustment will help reduce the inflation rate that rose to a 28-year high in March 2024

The Central Bank of Nigeria cut Deposit Money Banks' (DMBs) loan-to-deposit ratio by 15 percentage points to 50%

The apex bank disclosed this in a circular on Wednesday titled ‘Re: Regulatory Measures to Improve Lending to the Sector of the Nigerian Economy’ on Wednesday, April 17, 2024.

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

CBN explains decision on loan-to-deposit ratio reduction

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According to the apex bank, the decision followed a shift in its policy stance towards a more contractionary approach.

The CBN circular read:

"The regulatory directive issued is in response to a shift in the Bank’s policy stance towards a more contractionary approach, adjustments are being made to the loan-to-deposit ratio (LDR) policy to align with the current monetary tightening by the CBN.

"Consequently, the CBN has decided to decrease the LDR by 15 percentage points to 50%, corresponding to the increase in the Cash Reserve Ratio (CRR) rate for banks. All Deposit Money Banks (DMBs) are mandated to adhere to this requirement, with average daily figures being used to evaluate compliance.

"DMBs are advised to maintain strong risk management practices in their lending activities, while the CBN will continue to oversee compliance, monitor market developments, and adjust the LDR as necessary.

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What does it mean to customers in need of cash?

With this reduction, all deposit money banks, including Access and United Bank for Africa, are restricted in their ability to offer credits/ loans to businesses and individuals.

Many small and medium business owners will now find it difficult to secure loans as banks will become more circumspect on loan requests.

CBN, on the other hand, hopes that its decision will safeguard the financial system against undue risk exposure.

Nigerian banks adjust rate for loan

Earlier, Legit.ng reported that after the CBN raised the benchmark interest rate, banks repriced their assets, meaning customers would have to pay more for borrowing money.

As a result, the cost of loans, mortgages, and other credit products has increased.

Recall that the CBN raised the monetary policy rate (MPR) on February 27, 2024, from 18.75% in July 2023 to 22.75%, a 400 basis point rise.

Source: Legit.ng