Nigeria’s economy continues to bear the brunch for arbitrary deduction of Cash Reserve ratio (CRR) as the Central Bank of Nigeria (CBN) debited 24 banks a whopping N1.2 trillion last week, threatening lenders’ ability to lend to the economy.
The regulator debited banks twice last week in an effort to manage the rising liquidity in the system. A breakdown of the deduction as seen by BusinessDay showed that early in the review week, the Apex bank deducted N587.91 billion and the last trading day of the same week. It deducted a total of N601.61 billion.
“The continuous CRR debit has been limiting banks’ ability to plan and increase cost of funds. Banks have been rejecting deposits as a result of this,” said, a Lagos base investment, who chose to be anonymous.
Making the funds available in the banking system may lead to increase lending and keep interest low, the analyst said.
“It seems the essence of this debits is to avoid speculation on the FX. But as long as the spread remains, the speculation will persist. Also, the low interest rate has also made investors shift to dollar denominated assets, thereby putting more pressure on the greenback, the analyst further said.
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Abiodun Keripe, head investment research, Afrinvest West Africa, said, “We are all looking at the CBN easing liquidity within the banking system and broader economy but when they do another round of debit in connection with CRR, what they are doing is threatening liquidity and making it difficult and more complex for banks to support the economy via creation of credit at a decent pricing”.
He said this conflicts with the last move by the CBN on December when it announced some special treasury bill / bond offer to banks, which he thought was a window through which the CBN intends to refund the banks for some of the excess CRR debit that they passed to the banks earlier in the year. Official CRR is 22.7 percent but effective CRR is way above that.
On December 2, 2020, the regulator introduced a special 90 days tenor bill with zero coupon as part of efforts to deepen the financial markets.
Subsequently, on December 11, 2020, the CBN conducted the first Special Bill, offering N4.1 trillion for 81-day tenor to banks from the excess CRR.
So I would have thought that this beginning of the year, the CBN would keep up with that circular in December that it would be looking at that special bill/bond to the banks but then debiting again, creates a conflict with that policy announcement in December. What this means is they have threaten liquidity further within the banking system and that of course have implication on the banks in terms of how much money they have ready to do business, to support the economy in terms of creating credit at a decent price.
On his part, Uche Uwaleke, professor of capital market and president, Capital Market Academics of Nigeria, said the development is in keeping with the CRR requirements.
He said the impact will be a reduction in banking sector liquidity capable of pushing up lending rates. The frequency of the debits is a pointer to the fact that the 27.5% CRR is on the high side and that the time is ripe to reduce it consistent with the CBN’s present pro-growth stance.
