CBN Reviews Banks’ CRR Framework in Bid to Stabilise Market

As part of efforts to stabilise the financial market, the Central Bank of Nigeria (CBN) on Friday announced a cessation of daily Cash Reserve Requirement (CRR) debits for Deposit Money Banks (DMBs).

This was just as the naira exchange rate against the United States dollar appreciated slightly on Friday, on the official Nigerian Autonomous Foreign Exchange (NAFEX) window as it closed at N1,435/$1, while on the parallel market it closed at N1,430/$1.

The official FX window gained N26.37 to close on Friday at N1,435.53 compared to the N1,461.90 recorded on Thursday. However, the exchange rate depreciated on the parallel market on Friday, after gaining the previous day, to close on Friday at N1,430/$ compared to the N1,350/$ it closed on Thursday indicating a N70 loss in one day. The official window recorded an increase in daily turnover from $156.86 million on Thursday to $440.13 million on Friday indicating a 180.67 per cent increase.

The highest spot rate recorded on Friday was N1,526/$1 while the lowest spot rate recorded was N838.96/$1.

The apex bank disclosed the latest CRR policy in a circular dated February 2, 2024, titled, “Cash Reserve Requirement Framework Implementation Guidelines” which was signed by CBN acting Director, Banking Supervision Department, Dr. Adetona Adedeji, and addressed to all banks.

The banks had been complaining about the previous CRR regime which they had viewed as a punitive policy as it was constraining the amount of cash available for lending.

The central bank explained that it would be adopting an updated CRR mechanism intended to facilitate banks’ capacity for planning, monitoring, and aligning their records with the CBN.

The bank stated that the determination of the segment of deposits subject to sterilisation with the CBN as CRR would follow processes outlined in two phases.

According to the CBN, the first stage would involve the utilisation of the Incremental Approach – where the extant ratio of 32.5 per cent will be applied to increases in the banks’ weekly average adjusted deposits.

The CBN added that in the second phase, a CRR levy of 50 per cent of the lending shortfall would be enforced for banks that do not meet the minimum Loan-to-deposit ratio (LDR) as per CBN correspondence to all banks referenced BSD/DIR/GEN/LAB/12/049 dated September 30, 2019.

The bank said it would provide banks with details of the applied charges and their underlying computation rationale going forward.

Commenting on the new policy intervention by the apex bank on CRR, an Associate Director at Agusto Consulting, Mr. Jimi Ogbobine, said the circular was aimed at further correcting the challenges inherent in the FX market as well as regularise CRR.

In a chat with THISDAY on Friday, he noted that before now, there had been an arbitrary CRR administration which was utilised to part-fund the Ways and Means of the federal government.

Ogbobine said, “The CBN is now saying we want to return to orthodox monetary policy. So, you have bad behaviour and your bad behaviour doesn’t come with a consequence; because when you borrow very high, it will reflect in your interest rate which will go higher when you borrow anyhow. So, this new CRR framework is aimed at correcting the market.”

In order to stabilise the FX market, Ogbobine advised the CBN to take steps to ramp up dollar supply. He recommended that Nigeria should approach the International Monetary Fund (IMF), World Bank for support.

“We have already taken the bitter bill, which is devaluation and so let’s take the sweetener from them which is the FX. The IMF support would send confidence signal to investors that we are back to business. So, if we are able to unlock IMF funding, we would be able to attract foreign investments,” he added.

For his part, the Managing Director/Chief Business Officer, Optimus by Afrinvest, Mr. Ayodeji Ebo, also stressed the need for the country to take steps to increase dollar supply.

“A massive problem has been created in the FX market and it requires drastic measures. It might look expensive now, but if they are able to raise about $10 billion, clear the backlog and increase FX supply, and within the next six months or one year, we would begin to see foreign portfolio investors and foreign direct investments come in.

“Most of our external reserves are encumbered, so we need fresh money. Also, the security agencies must address oil theft so that we can raise our crude oil production to about 1.65 million barrels per day. That is what will show sincerity. The major steady source of FX has been crude oil sales. That is why we need to significantly reduce crude oil theft and increase supply,” Ayodeji explained.

James Emejo, Nume Ekeghe and Dike Onwuamaeze

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