CBN sequesters N321.6 billion from banks in new CRR Debits

The Central Bank of Nigeria (CBN) has hit commercial banks (deposit money banks) with a debit of N321.6 billion in Cash Reserve Ratio (CRR) related sequesters.

The cash reserve requirement is the minimum amount banks are expected to leave retained with the Central Bank of Nigeria from customer deposits. In January, the CRR was increased by 5% to 27.5%  by the CBN Monetary Policy Committee (MPC) who explained that the decision was intended to address monetary-induced inflation whilst retaining the benefits from the CBN’s LDR policy.

Sources inform Nairametrics this debits occurred towards the end of the week as CBN steps up efforts to sweep excess liquidity from the banking system. Information gathered by Nairametrics reveals about 17 banks had their vaults debited by the apex bank in CRR sequesters.

CRR debits have remained frequent since late last year when the CBN introduced policy measures that it hoped will force banks to lend more to the private sector. Between December 2019 and July 2020, Nairalytics (the research arm of Nairametrics) estimates about N4.8 trillion has been debited from bank deposits as CRR. Total banking reserves held by the CBN as at end of July was N11 trillion up from N6.2 trillion at the end of 2019. Some reports however estimate the figure at N2 trillion.

  • Recent published second quarter banking results also reveal the spate of debits. Union Bank of Nigeria reported its total cash reserve requirement increased from N296 billion as at December 2019 to N484.5 billion as at June 30th, 2020. This suggests the central bank has debited Union Bank N188 billion in additional CRR between January and June 2020. .
  • Sterling Bank reported that the CBN restricted about N215.5 billion of its customer deposits as of June 2020.
  • FBNH one of Nigeria’s largest banking entities also reported about N797 billion of its cash remained with the CBN in CRR debits as at June 2020.

What’s the big deal? Whilst banks have complained bitterly about the spate of debits and attendant effects on their deposits, their profits appear to remain robust despite the Covid-19 pandemic. In fact, the banking sector was one of the fastest-growing in the economy at about 28.41% in the second quarter and recorded a 24% growth in the first quarter of 2020.

This suggests the plausible reason for all the debits is perhaps as a monetary policy tool geared towards foreign exchange management. Since the CBN whittled down its OMO bills borrowings, it has resorted to pseudo capital controls to manage the forex liquidity.

To reduce the amount of naira chasing the dollar, the CBN offers higher interest rates on naira deposits. However, with interest rates at one of the lowest in recent years, sequestering excess banking funds appears a logical policy to reduce the ability of banks to engage in roundtripping.

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