Nigeria: CBN Targets 70% Loan-to-Deposit Ratio By 2020

11 December 2019

The Central Bank of Nigeria (CBN) has said it plans to increase the loan-to-deposit ratio from the current 65 per cent to 70 per cent by 2020.

The Deputy Director, Financial Policy and Regulations Department, Mr Hassan Mahmoud, disclosed this at the ongoing workshop for finance correspondents by the Nigeria Deposit Insurance Corporation (NDIC) in Yola, Adamawa State.

Speaking on the state of the Nigerian economy and implications for the stability of the banking system, Mahmoud said the apex bank increased the minimum loan-to-deposit ratio to encourage banks to lend and de-risk the real sector, particularly the SMEs.

He said: "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."

The CBN had raised the minimum LDR to 65 per cent, with a December 31, 2019 date, up from 60 per cent it had prescribed at the end of September 2019.

Mahmoud said: "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's 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 accounts 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," he stated.

On the stability of Nigerian banks, he acknowledged the existence of vulnerabilities, "but we do not foresee any systemic challenges in the banking industry that would jeopardize the banking system."

He said the banks have a total of N40 trillion in assets - four times the size of the national budget - and have a return on assets of about 2.2 percent.

He said the five biggest banks account for about 80 percent of the market share as well as 80 percent of the exposure with a total non-performing loan of about 6.6 percent, below the industry benchmark of 10 percent.

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