The recent easing of foreign exchange regulations is expected to have a moderate effect on banks’ Lending to Deposit Ratio, as per a report from Cordros Securities.
The report, titled ‘Impact of CBN’s Strategy to Reinforce LDR in Tier 1 Banks,’ suggests that banks might need to reassess their foreign currency loans and deposits due to the current sharp depreciation of FX.
Cordros highlights that the Central Bank of Nigeria conveyed its commitment to maintaining the minimum LDR at 65%, and plans to enforce this directive again from July 31, 2023.
Non-compliant Deposit Money Banks could face an additional Cash Reserve Requirement of around 50% on the lending shortfall based on the target LDR.
The circular also indicates that this policy aims to regulate excess liquidity in the financial system and support the real sector in Nigeria.
Cordros’ analysis shows that all the banks covered in their report have consistently fallen short of complying with the 65% minimum LDR directive, with tier 1 banks averaging a 50% LDR over the past three years, compared to the industry average of 65.9%. Preliminary figures for 2023 further underscore this trend.
