Due to the pressure placed on Deposit Money Banks by the Central Bank of Nigeria (CBN) to meet the 60% Loan-to-Deposit Ratio (LDR) deadline of September 2019, banks’ deposits with apex bank via the Standing Deposit Facility (SDF) dropped by 68%.
The specific figure dipped from N30.4 trillion to N9.7 trillion in 2018, representing a decline of 68%.
The CBN increased the LDR from the initial 60% to 65% after deducting the sum of N499.1 billion from the vault of 12 banks for failure to meet the September 30, 2019 deadline stipulated for them to maintain 60% LDR.
According to analysts, the decline in monetary policy rates made all Tier-II and weak Tier-I banks increase deposit with the CBN to boost liquidity that will help drive daily business activities. The Monetary Policy Committee voted to reduce the MPR to 13.5% from 14% on March 26, 2019.
It was also gathered that the CBN’s policy on SDF coerced weak banks to reduce deposit and concentrate on growing the LDR.
Meanwhile, several stakeholders have differed on the revision of certain CBN policies.
Reacting to this was the Head of Research, Pan African Capital Holdings Limited, Mr Moses Ojo, who noted that banks were aware of the proposed plans by the CBN to introduce the LDR policy. He also added that banks were really interested in lending to the real sector to meet the 60% LDR by September 30, 2019.
“Banks were aware of the CBN plans to introduce 60 per cent LDR policy this year. As a result of that, they needed the money to lend to the real sector and meet the benchmark.
Before now, banks were facing Cash Reserve Ratio of 22.5 per cent. If you combine the CRR and 60 per cent LDR, there is no way the SDL of the CBN will not reduce,” Ojo said.
He went further to add that failure of banks to deposit with the CBN would increase lending to the real sector and growth in the nation’s economy.
Johnson Chukwu, Managing Director of Cowry Asset Management Limited, said the CBN’s policy forced banks not to continue with the deposit.
He maintained that the day-to-day deposit on the SDF of the CBN was expected to drop as banks were lending to the real sector.
In July 2019, the CBN issued a circular to all banks noting that the remunerable daily placements by banks at the SDF shall not exceed N2 billion.
According to the circular signed by the Director, Financial Markets Department, Angela Sere-Ejembi, the SDF deposit of N2 billion shall be remunerated at the interest rate prescribed by the MPC from time to time.
“Any deposit by a bank in excess of N2bn shall not be remunerated. The provisions of the circular had begun to take effect from July 11, 2019.”