In an effort to boost economic growth in the country, Nigeria is giving its banks a choice: lend more of their money, or hand it over to the central bank and earn nothing on it.
The central bank set a minimum loan-to-deposit ratio for commercial banks as it seeks to spur lending to stimulate the economy.
All lenders will be required to have a ratio of at least 60 per cent by the end of September, the Central Bank of Nigeria said in a letter to banks, dated July 3, said Bloomberg.
Banks that fail to meet the threshold will have their cash reserve requirements, or the amount of money they have to keep at the central bank, increased, according to the circular.
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 encourage lending to small businesses and consumers and more mortgages, these sectors shall be assigned a weight of 150 per cent in computing the LDR.”
