CBN rolls out guidelines to boost bank lending to real sector

The Central Bank of Nigeria (CBN) on Wednesday rolled out new guidelines to deposit money banks (DMBs) aimed at boosting bank lending to the real sector.

In a circular to all banks with reference number BSD/DIR/GEN/MDD/01/045, dated July 3, 2019 and signed by Ahmad Abdullahi, director, banking operations of the CBN, the apex bank required all DMBs to maintain a minimum Loan to Deposit Ratio (LDR) of 60 percent.

Loan to deposit ratio (LDR) is a ratio between a bank’s total loans and its total deposits. The ratio is generally expressed in percentage terms. If the ratio is lower than one, the bank relied on its own deposits to make loans to its customers without any outside borrowing.
The circular titled ‘Regulatory Measures to Improve Lending to the Real Sector of the Nigerian Economy’, as seen by BusinessDay, said “all DMBs are hereby required to maintain a minimum Loan to Deposit Ratio (LDR) of 60 percent by September 30, 2019”. It said the ratio “shall be subject to quarterly review”.

The CBN said these measures were intended “to ramp up growth of the Nigerian economy through investment in the real sector”.

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

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The apex bank warned that failure to meet the stipulated minimum LDR by the specified date “shall result in a levy of additional Cash Reserve Requirement equal to 50 percent of the lending shortfall of the target LDR”.

Cash Reserve Ratio (CRR) is a specified minimum fraction of the total deposits of customers, which commercial banks have to hold as reserves either in cash or as deposits with the central bank. CRR is set according to the guidelines of the central bank of a country.

It added that the CBN would continue to review developments in the market with a view to facilitating greater investment in the real sector of the Nigerian economy.

It said the letter was “with immediate effect”.

The CBN has in recent times been somewhat desperate to increase lending to critical sectors of the Nigerian economy but analysts say an economy fraught with risks has tamed lending appetite.

Hope Moses-Ashike

Hope Moses-Ashike is an Associate Editor, Banking and Finance, with more than a decade of experience reporting on Nigeria’s financial system and broader economy. She closely tracks market movements, monetary policy decisions, company disclosures, regulatory actions, economic indicators, and global developments, and interprets what they mean for businesses, investors, policymakers, and households. Her reporting helps readers understand complex issues such as inflation trends, foreign exchange market dynamics, interest rate decisions, bank performance, and investment risks. She also covers major international events and periodically travels to Washington, D.C., to report on the World Bank/IMF Spring and Annual Meetings. Her dedication to financial journalism has earned her multiple recognitions and invitations to high-level professional development programmes. She is an alumna of the International Visitors Leadership Programme (IVLP) in the United States and holds an Advanced Financial Journalism Certificate from the Press Association Training in London, UK. Her other notable achievements include completing the Lagos Business School CMC Programme, the Bloomberg Media Africa Initiative Programme, and a Master Class in Journalism at Rhodes University in South Africa.