AndroBlaze:

Take your time and read the information people have provided.

He is not trying to encourage people to take loans. People taking loans increases the money supply and CBN under him have stated countless times that their is too much money in circulation (not necessarily because there were too many loans given out, but because he claims Emefiele was just printing money anyhow and spending it). Basic monetary economics says when money supply increases irrationally, prices go up as the money loses its worth, and that is what he is trying to stop. He is trying to control the supply of money (take money out of the system) and thats what practically all the policies he has unleashed (raising lending rates, increasing Treasury and Bond yields and now curbing commercial banks ability to lend by reducing LDR) are aimed at.

Its textbook economics, but could still fail if it turns out to be an overkill

Spot on.

These are temporary measures I believe.
He's trying to boost the Naira's value from the monetary end.

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Na person born this one o...

Adaiobanyi1:
Anyone who understands this should kindly explain to me.

Lol i was about to ask same

Economists in the house should clarify for us pls.

CaptainGo:


What are you on about?

By this new policy, the CBN is actually reducing loans by bank not encouraging it.

I know but is that not hurting the real economy? Those who need loans for business expansion nko?

AndroBlaze:

Take your time and read the information people have provided.

He is not trying to encourage people to take loans. People taking loans increases the money supply and CBN under him have stated countless times that their is too much money in circulation (not necessarily because there were too many loans given out, but because he claims Emefiele was just printing money anyhow and spending it). Basic monetary economics says when money supply increases irrationally, prices go up as the money loses its worth, and that is what he is trying to stop. He is trying to control the supply of money (take money out of the system) and thats what practically all the policies he has unleashed (raising lending rates, increasing Treasury and Bond yields and now curbing commercial banks ability to lend by reducing LDR) are aimed at.

Its textbook economics, but could still fail if it turns out to be an overkill

Thanks for clarifying, but in truth it is an overkill as this could hurt the money. It could impact on projects that need necessary funding.

AndroBlaze:

Take your time and read the information people have provided.

He is not trying to encourage people to take loans. People taking loans increases the money supply and CBN under him have stated countless times that their is too much money in circulation (not necessarily because there were too many loans given out, but because he claims Emefiele was just printing money anyhow and spending it). Basic monetary economics says when money supply increases irrationally, prices go up as the money loses its worth, and that is what he is trying to stop. He is trying to control the supply of money (take money out of the system) and thats what practically all the policies he has unleashed (raising lending rates, increasing Treasury and Bond yields and now curbing commercial banks ability to lend by reducing LDR) are aimed at.

Its textbook economics, but could still fail if it turns out to be an overkill

Won’t be an overkill. Inflation rate is too high, thus, affecting depreciation of Naira. Businesses that need liquidity would be forced to lower prices of their goods or services.

If businesses have favourable loan rate, they won’t be incentivised to reduce prices, keeping inflation high or sticky.

Believeintruth:


But this move makes no sense because the interst rates are high so lowering the loan to deposit ratio will still not encourage people to take loans at very high interest rates.

Lowering the loan to deposit ratio is not meant to encourage people to take loans. Its only meant to reduce pressure on banks to issue loans usikg customers deposits.

Because the banks top management are thinking in this way.

"CBN increasing interest rates discourages our customers from taking loans from us(the banks). Yet the same CBN wants us to achieve 65% loan to deposit ratio otherwise we get penalised."

So in return, CBN says let's take a little pressure of you and reduce the ratio to 50%.

But be rest assured, that once interest rates and inflation reduces, the loan to deposit ratio has to increase to align with the so called "1 trillion dollar Nigerian economy they want to achieve as well as the 500 billion naira bank recapitalisation agenda"

OkoEmm:


Lowering the loan to deposit ratio is not meant to encourage people to take loans. Its only meant to reduce pressure on banks to issue loans usikg customers deposits.

Because the banks top management are thinking in this way.

"CBN increasing interest rates discourages our customers from taking loans from us(the banks). Yet the same CBN wants us to achieve 65% loan to deposit ratio otherwise we get penalised."

So in return, CBN says let's take a little pressure of you and reduce the ratio to 50%.

But be rest assured, that once interest rates and inflation reduces, the loan to deposit ratio has to increase to align with the so called "1 trillion dollar Nigerian economy they want to achieve as well as the 500 billion naira bank recapitalisation agenda"

Okay till then

trudpo:
It means loans to customers is reduced.
For example, Loan = 52m and Deposit = 80m Therefore, Loan to Deposit = 52/80*100 = 65%

But now,

Loan = 40m and Deposit = 80m
Then, Loan to Deposit = 40/80*100 = 50%

Impact
Control money in circulation
Marginal impact on businesses than need financing

thank you for the breakdown

PoeticMind:


Firstly, Loan to deposit ratio (LDR) refers to the ratio of all the total loans (risk assets) a bank gives out versus its total deposit balance at a particular pint in time. Hence, if, for instance, bank A for has total customer deposit balance of N1 million, under the previous policy, they were required to give out loans to the tune of N650 thousand naira or face sanctions from CBN, whereas now they will only be required to lend out only N500 thousand, providing the bank with more liquidity for other non-lending activities.

In theory, this should help abate inflation, by reducing the volume of loans created and concurrently, reducing the volume of money in circulation. It will also help banks manage their risks better and keep their books cleaner in terms of bad loans.

This is a simple analysis though, there are a few more intricacies not factored in here like the CBN's Cash reserve ratio (CRR), liquidity reserves etc.

beautiful breakdown.