LDR Policy: Plausible But Insufficient to Stimulate Growth


Thursday, September 24, 2020 11:48 AM / By CSL Research / Header Image Credit: Banking Exchange


Proshare Nigeria Pvt. Ltd.

At the recently concluded MPC meeting, the Central Bank Governor, Godwin Emefiele disclosed that the total credit to the economy rose to N19.33tn in August 2020 from N15.57trn in May 2019 as a result of the minimum Loan to Deposit Ratio (LDR) policy of the apex bank. He further highlighted that the significant growth in credit was mainly driven by the manufacturing (N866.27bn), consumer credit (N527.65bn), oil and gas (N477.65bn), agriculture (N287.11bn) and construction (N270.97bn) sectors.   


We recall the CBN announced a raft of policy measures in Q3 2019 and Q4 2019 including the minimum LDR of 60% (which was later increased to 65%) as well as banning local investors from participating in its Open Market Operation (OMO). These policies led to a downward pressure on lending rates due to increased liquidity as well as pressure on banks to create new loans given that non-complaince with the LDR policy attracts sterilization of 50% of the shortfall required in meeting the threshold in form of CRR debits.


Thus far in 2020, the apex bank has reduced the benchmark Monetary Policy Rate (MPR) twice to 11.5%, reviewed the interest rate on savings deposits to a minimum of 10% of the monetary policy rate (MPR) from 30% previously, and adjusted the asymmetric corridor around the MPR from +200/-500bps to +100/-700bps. We believe the ultimate aim of these policy measures is to bring down lending rates and stimulate credit creation in the economy, thus improving economic output. While we acknowledge the efforts of the apex bank, we note that the presence of structural bottlenecks in the operating environment will continue to limit the effectiveness of monetary policy tools in stimulating economic growth.

Proshare Nigeria Pvt. Ltd.

Looking ahead, we believe banks will remain cautious in creating loans given elevated risks to asset quality due to the fragile macro conditions. In the medium to long term, credit creation will be dependent on the pace and pattern of recovery in the economy.


Proshare Nigeria Pvt. Ltd.

Related News

  1. Bank NPLs (11) - Technical Analysis on Banks' NPLs - LDR
  2. CBN Retains Minimum LDR At 65%; Encourages DMBs To Maintain Strong Risk Mgmt Practice
  3. Rates Continue to Decline as Banks Struggle to Meet CBN's 65% Minimum LDR
  4. LDR: CBN Urges Banks To Increase SME Lending
  5. CBN Reviews LDR Target Upwards To 65%; DMBs Required To Attain LDR of 65% By Dec 31, 2019
  6. How The CBN LDR Will Shape Nigeria's Economy- Dr. Adesola Adeduntan
  7. GTBank LDR At 57%; To Grow Loans By N50bn To Meet CBN 60% LDR Limit
  8. CBN's New Minimum LDR Requirement May Worsen NPLs
  9. Banks Lend, the CBN Pushes Forbearance
  10. Low Liquidity Expected to Dampen Impact of Lower Rates
  11. Possible Implications of MPC's 100bps Policy Rate Cut
  12. CBN Communique No. 132 of the MPC Meeting - Sep 21-22, 2020
  13. CBN MPC Reduces MPR to 11.50%, Retains Other Parameters After Sept 2020 Meeting
  14. An Eye into Possible MPC Outcomes
  15. MPC Preview: Balancing FX Stability and Moderating Economic Contraction
  16. Several Pointers to Same Again From the MPC
  17. Implications of CBN's Downward Review of the Interest Rate on Savings Deposit
  18. Finally, Some Decent Growth in Lending Volumes
  19. LIBOR - The Road Ahead
  20. High Hopes of The Pick-up in Credit Extension

Proshare Nigeria Pvt. Ltd.
Related News