CBN plans repositioning Nigerian bank’s LDR to par with other countries
July 24, 20191.2K views0 comments
The loan to deposit ratio (LDR) of the Nigerian banking industry measures low when pitched against what is obtainable in other countries, says Godwin Emefiele, the governor of Nigeria’s Central Bank.
Emefiele said the LDR of Nigeria’s banking industry is currently at 57 percent. This is against what is obtainable in countries such as Brazil wbich has 70 percent, the United States (75 percent), China (71.2 percent), India (75 percent), South Africa (91 percent) Kenya (76 percent), and Japan (70 percent).
According to him, the situation will be addressed if there is no improvement by September.
He said the CBN is looking to address the situation through a monthly review of banking sector’s LDR by September 30.
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“We need everybody’s support to achieve growth in Nigeria. When the monetary policy raised the concern, we had a flat loan-deposit ratio.
We would apply certain sanctions that involve asking the 50 percent of the ‘un-lent’ portions of their loans into the CRR.
The deadline is 30th of September. After September 30, we are going to begin a month-by-month monitoring and then prescription of deposit loan ratio for the banks,” Emefiele told news men shortly after the July 2019 monetary policy committee (MPC) meeting held in Abuja.
The loan-deposit ratio is a ratio between the banks total loans and total deposits and it is used to calculate a lending institution’s ability to cover withdrawals made by its customers.
The CBN governor said the MPC was of the view that there was a need to boost output growth through sustained increase in consumer credit, mortgage loans and granting loans to the Small and Medium Enterprises.
He said the committee also observed that while the management of the CBN had started the prescription of using benchmark loan-to-deposit ratios to redirect the banks’ focus to lending, there was a need to mitigate credit risk.
To achieve this, Emefiele explained that the committee enjoined the management of the CBN to de-risk the financial markets, through the development of a reliable credit scoring system, similar to the arrangement in the advanced countries as this would encourage the DMBs to safely grow their credit portfolios.
Emefiele said the MPC also called on the fiscal authorities to expedite action in expanding the tax base of the economy to improve government’s revenue and stem the growth in public borrowing.
The committee further urged the fiscal authorities to build fiscal buffers to avert macroeconomic downturn in the event of a decline in oil prices.