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Nigeria's Central Bank reduces loan-to-deposit ratio to align with monetary tightening policy

Economy & Investments Nigeria's Central Bank reduces loan-to-deposit ratio to align with monetary tightening policy
WED, 17 APR 2024 LISTEN

The Central Bank of Nigeria (CBN) has reduced the loan-to-deposit ratio (LDR) for banks from 65% to 50% to align with its monetary policy stance of tightening, according to a letter to banks seen by ModernGhana News.

In the letter, Dr. Adetona S Adedeji, Acting Director of the CBN's Banking Supervision Department said "Following a shift in the Bank's policy stance towards a more contractionary approach, it is imperative to review the loan-to-deposit ratio (LDR) policy to align with the current monetary tightening by the CBN."

The CBN recently increased banks' cash reserve requirement ratio (CRR) - the share of deposits that banks must hold with the central bank - from 27.5% to 32.5% in order to curb money supply growth and ease inflationary pressures.

Reducing the LDR by 15 percentage points - from 65% to 50% - in proportion to the CRR rise indicates the desire to achieve policy synchronisation.

Dr. Adedeji stated that "the CBN has decided to reduce the LDR by 15 percentage points to 50%, in a similar proportion to the increase in the CRR rate for banks."

The move is aimed at reinforcing the CBN's tightening stance following growing headwinds in Nigeria's macroeconomic environment, including accelerating inflation and currency pressures.

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Isaac Donkor Distinguished
Isaac Donkor Distinguished

News ReporterPage: IsaacDonkorDistinguished

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