9 min read

Ife Adewole


Financial experts have taken time to carefully analyzed the implications of the new guidelines circulated to all banks in the country on Wednesday July 3, 2019 by the Central Bank of Nigeria, CBN. The new guidelines were given to Deposit Money Banks, DMBs with the aim of boosting banks’ lending to the real sector of the economy.

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In a circular to all banks with reference; BSD/DIR/GEN/MDD/01045, dated July 3, 2019 and signed by the Director, Banking Supervision of CBN, Ahmad Abdullahi, DMBs were requested to maintain a minimum Loan to Deposit Ratio, LDR of 60 percent.


The circular titled ‘Regulatory Measures to Improve Lending to the Real Sector of the Nigerian Economy’ directed all DMBs to maintain a minimum loan to Deposit Ratio of 60 percent by September 30, 2019, adding that the ratio shall be subject to quarterly review.

The circular stated that “In order to ramp up growth of the Nigerian economy through investment in the real sector, the Central Bank of Nigeria (CBN) has approved the following measures.

  • All DMBs are hereby required to maintain a minimum Loan Deposit Ratio (LDR) of 60% by September 30, 2019. This ratio shall be subject to quarterly review
  • To encourage SMEs, Retail, Mortgage and Consumer Lending, these sectors shall be assigned a weight of 150% in computing the LDR for this purpose. The CBN shall provide a framework for classification of enterprise/businesses that fall under these categories.
  • Failure to meet the above minimum LDR by the specified date shall result in a levy of additional Cash Reserve Requirement equal to 50% of the lending shortfall of the target LDR.

The CBN shall continue to review developments in the market with a view to facilitating greater investment in the real sector of the Nigerian economy.

This letter is with immediate effect”.


A Banker and Financial Services Adviser, Mr Akim Yusuf explained that CBN new guidelines is a development that will enable banks to adequately support SMEs. He said “it is a good development because our banks have been quite unsupportive of businesses.

“Bank prefer to invest in treasury bills, interbank placements and foreign exchange than lending to businesses”.

Akim further added the importance of making loans available in all sectors of the Nigerian economy, he added that “However, CBN needs to increase it oversight as there will be a tendency to concentrate loans in the hands of few customers in order to meet that threshold and possibly leading to jumbo bad debts. There must be a spread across borrowers and sectors of the economy.


Also, an Entrepreneur and Business Consultant Mr. Adeyinka Adegbuyi gave a broad view on the new CBN guidelines.

He said “CBN’s latest profession about stimulating more credit facilities at SMEs and micro industry will produce a dual impact on the economy.

“Economic indices such as GDP per capital will increase marginally at micro economic level as more funds will be directly available to small and medium enterprises which hitherto have been starved of enough stimulants of business development – capital and enabling environment.

“The delightful face of the coin is that as more money is available in circulation for the middle class, more money would move around for the masses as the lower class is grossly funded by the financial health of the middle class. The latter determines the sales of the former in commodities of basic life support like food stuff; menial workers, clothing and general service provision like building where majority of the workers are in the lower bracket, artisanship and all sorts of petty trading.

“The middle class however poses a challenge to the policy as can be seen in common among Nigerians. Once basic living or what Abraham Maslow in his theory of human needs refers to as physiologic needs are met, there is a huge tendency for people to become more encumbered by taking up more loans to the extent of being overly leveraged. Many will decide to spend more on luxury items, take expensive holidays or acquire expensive machines which are above their income leverage.

“This will pose a great challenge to the good policy as the credit system of Nigeria is not mature enough in technology to manage the teeming population warming up to borrow as much as possible.

“The system will invariably be overstretched as the Financial Institutions (FI) may be so challenged that many MFBs (Microfinance Banks) may have to shut their doors for insolvency when the populace is unable to repay the principal and interest as and when due.

“The government is advised therefore to provide a cushion of support for these banks for the above noted outcome of multiple default in facilities. The credit bureau also needs to be at their top form to provide adequate support for the banks especially the lower capitalized banks

“Grossly, it is a progressive policy should the mother bank, CBN monitor the guidelines to fruition and ensure that the funds get to their desired target rather than having the funds round tripped among the high and mighty fishes who already have tangible access to funds

“The provision of enabling infrastructure support from the FG will also make a good impact on the seed as SMEs will incur lighter overhead cost and so be able to do more business”.

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