Banks should use at least 60percent of their deposits for loans by the end of September, the central bank said on July 3, according to a circular. Those that don’t will have their cash reserve requirements increased, meaning they’ll be forced to park more money at the central bank.
Nigeria’s banks are some of the most reluctant lenders in major emerging markets, with an average loan-to-deposit ratio below 60percent. That compares with 78percent across Africa, according to data. It is above 90percent in South Africa and about 76percent in Kenya.
The decision was taken “to ramp up growth of the Nigerian economy through investment in the real sector,” Ahmad Abdullahi, director of banking supervision, said in the letter to banks.
“To encourage lending to small businesses and consumers and more mortgages, these sectors shall be assigned a weight of 150percent” when computing the loan-to-deposits ratio. Although there was previously no rule on minimum loan-to-deposit ratios, many Nigerian lenders have a ratio of about 40percent, below the industry average, Abdullahi said.