The Central Bank of Nigeria (CBN) has again wielded its big stick on some erring banks in the country just as it sends out a clear indication that it may reduce the savings account deposit rate to 1 percent as yields crash.
Highlights of the Bankers’ Committee Feedback seen by BusinessDay show that six banks may have been sanctioned for breaching FX rules on using wired funds to finance banned/prohibited items. The committee also announced another set of 14 banks that violated FX rules.
The Bankers’ Committee is the umbrella body of CBN officials and managing directors of deposit money banks in the country. The apex bank warned that banks should guard their operations seriously and tread cautiously in FX market. “Any bank that allows customers to do third party transactions without clear purpose/rationale constitutes contravention with penalties,” CBN warned.
On the issue of cash reserve ratio (CRR), the share of a bank’s total deposit that is kept with the CBN, which was recently raised by 500bps to 27.5 percent from 22.5 percent, the committee noted that CRR would continue at discretionary application and could be as high as 30-40 percent if the apex bank detects that the banks bid for Open Market Operations (OMO).
“OMO has now become poison as against honey that it used to be. Banks are enjoined to remove their eyes from OMO and play responsibly,” CBN said.
OMO is basically designed to be a short-term market instrument that the CBN uses to control the supply of money in the economy. Whenever the CBN believes the inflation rate is high due to increased money supply, it sells OMO bills at high-interest rates mopping up liquidity from the economy.
On the flip side, if it believes there is a liquidity squeeze due to high-interest rates, it buys back OMO bills flooding the financial market with cash. In a bid to boost lending to the real sector, the apex bank in October last year restricted private individuals and local non-banking firms from participating in its high-yield OMO market at both primary and secondary segments.
It has also in recent weeks restricted the participation of banks in the primary OMO market declaring itself a liquidity provider. The committee also warned banks to desist from taking advantage of cheap liquidity to make illicit profit. The apex bank said it would defend the naira proactively, just as it warned that proponents of devaluation would wait in vain.
It also announced new CRR for merchant banks from 2 percent to 27.5 percent. “Any merchant bank that can’t cope should surrender its licence and opt for commercial banking licence,” CBN warned. As at November 2019, merchant banks’ lending to the private sector was about N298 billion while their deposits were around N344.3 billion.
The Bankers’ Committee noted that the loan-deposit ratio adjustments would now be done to remove all short-tenured facilities granted for 90/180 days, urging banks to lend long term.
OLUFIKAYO OWOEYE
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