The Central Bank of Nigeria (CBN) has mandated deposit money banks in the country to give out 60% of deposits as loans.
In a letter to banks, the apex bank said banks that did not comply with the directive would have their cash reserve ratios increased.
The cash reserve ratio is the share of customers deposit that is kept with the central bank.
According to the letter, which was signed by Ahmad Abdullahi, director of banking supervision, the purpose of the directive is to grow the economy by improving investments in the real sector.
“To encourage lending to small businesses and consumers and more mortgages, these sectors shall be assigned a weight of 150% in computing the LDR,” the letter read.
“Failure to meet the above minimum LDR by the specified date shall result in a levy of additional Cash Reserve Requirement equal to 50% of the lending shortfall of the target LDR.”
The bank has been making significant effort to improve lending to the real sector, this it hopes, will spur economic growth.