In a move to combat liquidity in the market and tackle the inflation rate that reached a peak not seen in 28 years this March, the Central Bank of Nigeria has imposed restrictions on the capacity of banks to issue loans. This decision aims at curbing the inflationary pressures that have been mounting in the country.
The Abuja-based regulator announced a reduction in the bank’s loan-to-deposit ratio by 15 percentage points, bringing it down to 50%. This adjustment is intended to synchronize with the current monetary tightening policies, including aligning with the banks' requisite cash reserve ratio.
Earlier in February, the central bank had already escalated the minimum cash reserve requirement for banks from 32.5% to 45%. This was part of its strategy to diminish naira liquidity, stabilize the currency, and mitigate inflationary pressures. Between February and March, it also escalated the benchmark interest rate by 600 basis points to 24.75%, with the same objectives in mind.
The naira, which had depreciated by 43% against the dollar in the initial months of the year, saw a significant recovery of about 40% since mid-March, marking the most substantial gain globally among currencies tracked.
The central bank has urged banks to uphold robust risk management practices in their lending activities. It has also committed to ongoing monitoring of compliance, reviewing market developments, and adjusting the loan-to-deposit ratio as necessary to ensure financial stability.
