CBN To Grow Credit By N860 Billion With 65% LDR

By Emmanuel Aziken, Editor

With the exception of about two banks, many industry players in the money market are expected to meet the new Loan to Deposit Ratio, LDR of 65%, industry players have said.

An estimated N860 billion in credit is expected to be realised at the end of the fourth quarter through the new measure industry sources reveal.

The new LDR came a day after the September 30 deadline given by the apex bank to realise the 60% LDR that was pronounced at the beginning of the third quarter.

Banks now have up till the end of the year to meet the new threshold which was announced by the Central Bank as another move towards energizing the real sector.

The new circular came upon the Bank’s observation that credit growth had risen by 5.33% between May and September.

The percentage increase amounted to a rise of credit from N15.56 trillion as at end-May 2019 to N16.39 trillion as at September 26, 2019, meaning a rise of N829.40 billion in credits to the economy.

One industry source said that based on the N829.40 increase in credit between May and September, that an additional credit of N860 billion to the sector in the period between October and December.

“In order to sustain the momentum and in line with the provision of our earlier letter, the minimum LDR target for all Deposit Money Banks (DMBs) is hereby reviewed upwards from 60 percent to 65 percent,” the circular noted.

 “All Deposit Money Banks are required to attain a minimum of LDR of 65 percent by December 31, 2019,” the CBN circular added.

Highlighting its interest in boosting the real sector, the Bank in the circular said “To encourage the SMEs, retail, mortgage and consumer lending, these sectors shall be assigned a weight of 150 percent in computing the LDR for this purpose.”

However, the Bank’s decision to give a 150% weight in categorizing some segments of the real sector according to some stakeholders could tempt banks to either shed deposit or recategorize their loan

Foreign owned banks which had been particularly uncomfortable with the exposure to risks that could arise are expected to take that route.

Many banks have, however, been given additional security by the CBN’s window given to lenders to realise loans through third party industry players.

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