What We Know About CBN’s Directives On Minimum Loan-to-Deposit Ratio

There has been a lot of regulatory directives by the Central Bank of Nigeria (CBN) to banks this year alone. However, one which has continued to reappear on the pages of newspapers, is the CBN order to banks; mandating them to keep a minimum loan-to-deposit ratio (LDR) of 65% by December 2019 – an upward revision from the initial 60% to be maintained by September 2019.

Lending ratio (LDR), compares a bank’s total loans to its total deposits for the same period. A higher LDR means the bank is issuing out more of its deposits in loans and vice versa.

What is the premise of the WhatsApp message?

Snippet from Claim; Full Claim Here

While some of the claims in the message may be correct, some are wrong interpretations of the CBN’s directive. As a result, they are misleading and could wrongly inform the public; particularly the part which says the banks would lose half of their lending shortfalls to CBN.

In fact, a part of the Whatsapp message claimed: “either the banks loan out the money or they will lose half of it for nothing!”

It all started on July 3, 2019; when CBN issued a circular on regulatory measures to improve lending to the real sector of the Nigerian economy. The circular required deposit money banks to lend at least 60% of deposits to customers before the end of September; noting that the ratio was subject to a quarterly review.

CBN subsequently changed the minimum LDR on Deposit Money Banks’ (DMBs) to 65% on September, 30th. It said the decision was informed by appreciable growth in the level of the banking sector’s gross credit; following the pronouncement of a 60% minimum LDR and the need to sustain the momentum.

But why does CBN want banks to lend?

The Nigerian economy has continued to struggle for growth since it emerged from a recession in the second quarter of 2017. 

In the first and second quarters of 2019, the Gross Domestic Product (GDP) grew by 2.10% and 1.94%, respectively. Still, it was lower than 2.38% growth recorded in the last quarter of 2018; when it recorded the largest, post-recession expansion.

Hence, CBN has asked banks to improve lending to the real sector of the Nigerian economy; where small businesses need credit to expand. However, their hail mary attempt at ramping up growth in the Nigerian economy through investment is not without its opposition…

Why banks are reluctant to lend… 

Generally, banks would rather not lend to the average citizen for a host or reasons ranging from lack of adequate credit information to a non-centralized medium of sanctioning for loan defaulters. They instead, prefer to use depositors’ funds to purchase low-risk Federal Government securities such as bonds and treasury bills; offering about 15% annual returns and helping to bolster earnings.

Penalty for not maintaining LDR threshold

To maintain the 65% LDR threshold, there are three possible options available to banks which include:

  • deliberate reduction of customer deposits,;
  • issuing more loans;
  • receiving an additional levy of cash reserve requirement equal to 50% of their LDR shortfall.

Banks falling short of the stipulated lending-deposit ratio, will be levied an additional cash reserve requirement (CRR)- equal to 50% of the LDR shortfall (essentially half of the payment balance).


The cash reserve requirement (CRR) is a monetary regulation that mandates banks to keep 27.5% of their total deposits with the CBN. This comprises of the regular CRR of 22.5% and 5% special intervention reserve. The policy ensures banks do not run out of cash to meet the payment demands of their depositors.

An additional CRR penalty means that banks defaulting on the specified LDR, risk being required to deposit excess funds into CBN’s zero interest-yielding account. The banks would also not be able to purchase government securities with the funds; yet, they would still have to pay interest on the deposits.

For instance, a bank operating in Nigeria with total customer deposits of N10 million is expected to have kept N2.75 million with the CBN and lent out N6.5 million by the end of December. Peradventure, the bank could only lend N5.5 million (that’s 55% LDR) which is N1 million lower than the specified ratio of loanable deposits, it would be required to keep an additional N500,000 to make a total of N3.25 million with the CBN as cash reserve requirement. 

Nonetheless, the additional CRR would be refunded whenever the lenders meet the set threshold. However, the bank would still incur a sum of N5,000 monthly as interest expense on the N500,000 should it fail to meet the lending ratio by the set deadline. This is based on the assumption that the bank pays an annual interest rate of 12 % on deposits.

How CBN penalised non-compliant banks

On September 26, the CBN restricted the sum of N499.1 billion from the accounts of 12 banks that failed to meet its minimum lending ratio of 60%. The amount represents half of the various lending shortfalls by the dozen lenders. 

The affected banks are Zenith Bank (N135.63 billion); Citibank (N100.74 billion); United Bank for Africa (N99.68 billion); First Bank of Nigeria (N74.67 billion); Standard Chartered (N30.03 billion); Guaranty Trust Bank (N25.15 billion); First City Monument Bank (N14.37 billion); Jaiz Bank (N7.53 billion); Keystone Bank (N4.16 billion); Rand Merchant Bank (N2.82 billion); FBNQuest Merchant (N2.7 billion); and Suntrust (N1.7 billion). 

However, CBN refunded about N200 billion to a majority of the affected banks this month after they improved their LDR positions between September 26 and 30. This amount represents 40% of almost half a trillion naira of the banks’ customer deposits earlier restricted by CBN.


Clearly, available documents from CBN confirm that it asked banks to maintain a minimum LDR of 60%, and that was subsequently reviewed to 65%. It is equally true that banks are deploying strategies to increase lending in line with the CBN’s directive; according to emails sent to customers. However, there is no evidence to show the banks will entirely lose half of their lending shortfalls to CBN; rather, the amount would be restricted from access pending when the lending threshold will be attained.

Also, while the one dozen banks may have been penalised for failing to meet the required lending ratio, it does not suggest “they are already in default”; as insinuated by the author of the Whatsapp message. This is because the CBN refunded some of the banks that have improved their LDR positions before the set deadline.

This fact-check was done by a Dubawa Fact-checking Fellow in collaboration with BusinessDay, the leading medium for up-to-date news and insightful analysis of business, policy and the economy in Nigeria.

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