A report from Cordros Securities suggests that the liberalization of foreign exchange is expected to have a moderate impact on banks’ Lending to Deposit Ratio (LDR).

Impact of CBN’s plan to reinforce LDR

The report, titled ‘Impact of the CBN’s Plan to Reinforce LDR on Tier 1 Banks,’ indicates that banks may need to reassess their loans and deposits denominated in foreign currencies.

The report highlights that the Central Bank of Nigeria (CBN) recently reaffirmed its commitment to maintaining a minimum LDR of 65%, along with resuming enforcement of this directive starting from July 31, 2023.

Non-compliance with this requirement could lead to an additional Cash Reserve Requirement of approximately 50%, based on the lending deficit implied by the target LDR.

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Cordros Securities’ analysis reveals that all the banks covered in the report have consistently fallen short of the CBN’s 65% minimum LDR directive.

Over the past three years, tier 1 banks have averaged an LDR of around 50%, considerably lower than the industry-wide average of 65.9%.