In a bid to enhance economic recovery and also restore the Nigerian economy on the path of growth, the Central Bank of Nigeria (CBN) has approved the release of banks’ excess cash reserve requirement (CRR), which is above the regulatory minimum.
The CBN stated that this would be implemented through its issuance of a 90-day CBN Special Bills.
This was disclosed in a letter issued by the CBN’s Director, Banking Supervision, Mr. Bello Hassan, which was dated December 1, 2020, and circulated to all banks
The CBN mandates banks to keep a certain percentage of depositors’ money in the apex bank’s customer as a way of controlling the amount of money in circulation.
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In November, the Monetary Policy Committee left the CRR at 27.5 percent. The apex bank had raised the CRR to that level in January 2020 in its attempt to keep the country’s burgeoning inflation checked.
The regulatory bank sanctions erring banks that fail to effect its minimum loan-to-deposit ratio (LDR) policy, among others, by imposing higher CRR on them.
This, analysts had said, was constraining banks’ ability to effectively perform their financial intermediation role.
But in the latest letter titled: “Release of Cash Reserve Requirement through the Issuance of CBN Special Bills,” the banking sector regulator stated: “The CBN on November 30, 2020, approved the release of the excess above regulatory minimum CRR 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 will be accomplished through the issuance of CBN Special Bills.”
It explained that the features of the special bills include a tenor of 90 days, subject to rollover at the instance of the CBN, as well as zero-coupon, with an implied yield to be worked out by the CBN.
In addition, the instrument will be tradable and discountable at the CBN window and will qualify as liquid assets.
“The CBN will continue to monitor banks’ utilization of the liquidity injection from the CRR release to ensure optimal use for transactions that support economic recovery and growth,” it added.
Also in a circular dated December 1, 2020, entitled: Introduction of Central Bank of Nigeria Special Bills, signed by Hassan, the bank reiterated the features of the special bills, saying it “will continue to ensure optimal regulation of systemic liquidity and promote efficient financial markets in support of economic recovery and sustained growth.”
CBN Governor, Mr. Godwin Emefiele, had recently predicted a two per cent growth in the country’s Gross Domestic Product (GDP) for 2021.
Nigeria’s real GDP contracted for the second consecutive quarter by 3.62 per cent in the third quarter of the year, compared to a growth of -6.10 per cent, which showed that the country has entered its second economic recession in five years.
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