Opinion

CBN debits banks fresh N216.1bn for CRR default

The Central Bank of Nigeria (CBN) has debited 26 lenders N216.1billion for failing to meet CRR (Cash Reserve Ratio) targets, Saturday Telegraph learnt yesterday. The move comes two weeks after the apex bank collected N459.7 billion from the same number of banks for also failing to meet CRR targets.

In April, the CBN debited 28 commercial and merchant banks N1.4trillion for failing to meet their CRR obligations. The CRR is the minimum amount banks are expected to retain with the CBN from customer deposits. The CBN’s Monetary Policy Committee (MPC) had in January this year increased the CRR by 5 per cent from 22.5 per cent to 27.5 per cent to help soak up liquidity from the banking system, a move aimed at curbing inflation and naira instability. Banking sources said that the latest debits, like the one of June 5, occurred ahead of a foreign exchange auction yesterday. According to the sources, the CBN’s withdrawal of liquidity is aimed at defending the naira, which has been under pressure on both the parallel market and the Investors and Exporters’ (I&E) window.

“The CBN usually debits banks a day before its retail forex interventions because it does not want them to have so much naira at their disposal to make huge demands for forex,” a trader told Saturday Telegraph on condition of anonymity. A banker, who did not want to be named, also said the debits, which had become frequent and over the 27.5% limit, mostly affected offshore lenders since they don’t operate retail business and are debited from their corporate deposits or borrowings. The naira has come under intense pressure in recent months due to the impact of the coronavirus pandemic, a slump in the price of oil – the commodity that accounts for about 90 per cent of Nigeria’s forex earnings – as well as the exit of foreign portfolio investors, which has led to dollar scarcity in the foreign exchange market. Indeed, the local currency has been hitting new lows on the over-the-counter spot and parallel markets since March after the CBN adjusted its official rate from N306 to N361 per dollar implying a 15% devaluation, to absorb the impact of the oil slump. On Wednesday and Thursday, the naira opened trading at N385/$1 on the official market, weaker than the CBN’s quoted rate of N361, before recovering to close at N361 per dollar.

It, however, fell to N453 against the dollar from N450/$ last week. The naira’s weakness in the last few days came amid mounting speculation that CBN was getting set to unify the exchange rate. The speculation followed the release of documents on Tuesday, in which the Minister of Finance, Budget and National Planning, Mrs. Zainab Ahmed, disclosed that the country would seek to unify its multiple exchange rate regime to generate more local currency from its dollar inflows and manage the rate in a sustainable manner. The International Monetary Fund (IMF) has frequently advised Nigeria to embrace exchange rate unification. In a letter of intent to request $3.4billion emergency financing package from the IMF in April, Nigeria vowed to seek a more flexible and unified naira to respond to the external shock brought by the coronavirus pandemic, leaving foreign-exchange interventions for only when there are large fluctuations. The letter, which was signed by Ahmed and the CBN Governor, Mr. Godwin Emefiele, said more currency flexibility would help protect dwindling international reserves.

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