In a move aimed at boosting banks’ efficiency, the Central Bank of Nigeria (CBN) is putting a stop to the daily Cash Reserve Requirement (CRR) debits and will be adopting an updated CRR mechanism.
Reserve requirements are the amount of funds that a bank holds in reserve to ensure that it is able to meet liabilities in case of sudden withdrawals. Reserve requirements are a tool used by the central bank to increase or decrease the money supply in the economy and influence interest rates.
The development feeds into the regulator’s efforts to address the terrible currency insufficiency challenge while also ensuring the economy is flooded with excess liquidity to avoid hurting the country.
In a letter to deposit money banks (DMBs) dated February 02, 2024, the apex bank stated that the action was intended to facilitate their capacity for planning, monitoring, and aligning their records with the CBN.
According to the letter, the determination of the segment of deposits subject to sterilization with the CBN as CRR will now follow two processes with the first phase being utilization of the Incremental Approach: The extant ratios (commercial banks 32.5% and merchant banks 10%) will be applied to increases in the banks’ weekly average adjusted deposits.
In phase two, CRR levy of 50% of the lending shortfall will be enforced for banks that do not meet the minimum Loan to Deposit Ratio (LDR) as contained in a correspondence to all banks referenced BSD/DIR/GEN/LAB/12/049 dated September 30, 2019.
Adetona Adedeji, Acting Director Banking Supervision Department stated that the CBN will provide banks with details of the applied charges and their underlying computation rationale.
The CBN, in recent weeks, has been tweaking the processes and procedures in the money market to ensure a total system reset.