Banks swim in excess cash to lend customers as CBN relaxes CRR

Commercial banks in Nigeria are now swimming in heavy load of cash to lend to customers as the Apex Bank has just relaxed its credit reserve ratio, CRR requirement which stipulates the minimum amount of cash the banks must deposit with it.

In a statement dated November, 30, the central bank’s Bello Hassan, director of banking supervision said, “the Central bank of Nigeria on November 30, 2020, approved the release of the excess above regulatory minimum cash reserve requirement of banks. This is part of measures to improve liquidity and support economic recovery through the increased extension of credit facilities to the real sector.”

This he said will be accomplished through the issuance of CBN special bills with the following features- “tenor of 90 days, subject to roll over at the instance of the CBN; zero coupons with an implied yield to be worked out by the CBN; the instrument will be traceable and will be discountable at the CBN window and finally, the instrument will qualify as liquid assets.”

It is the first time that the CBN has acknowledged it was holding cash beyond the CRR limit and this could be the most impactful action of the Apex bank yet as analysts have said it signals a shift from the dogged defence of the Naira which meant that the apex bank ruthlessly cleared away cash from the banking system to prevent the cash from chasing after scarce foreign exchange.

Two days ago, the CBN also amended the rules for receipt of diaspora remittances as part of its efforts to boost the foreign exchange market.

The Apex bank this will liberalize, simplify and improve the receipt and administration of diaspora remittances into Nigeria, beneficiaries of diaspora remittances through International Money Transfer Operators should henceforth, receive such inflows in foreign currency through the designated bank of their choice.

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  1. Still voodoo economics. They did not specify the actual reduced ratio of the CRR. It’s still a fraud on Nigerians. What we need is lending rate to hoover between 2% and 4%. Reduced cost of lending is the main driver for the growth of SMEs. Most of the multinationals can import capital at rates less than 2% if they so desire. The bedrock and corner piece of business growth in a country like Nigeria is to keep the SMEs vibrant and active. When people running your economy cannot boast of any business venture they’ve birthed to success, what you have as a norm is somersault voodoo economic policies that have no mileage whatsoever. Why would any serious economy be dependent on diaspora remittances for exchange rate stability?

  2. CBN relaxation of the application of the CRR leaves banks with tons of cash to lend to customers. Would the banks actually lend customers under this economic condition?

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