New Telegraph

CBN debits banks N118bn for CRR default

T

he Central Bank of Nigeria (CBN) has debited 14 lenders N118billion for failing to meet Cash Reserve Ratio (CRR) targets, Sunday Telegraph learnt yesterday.

 

 

The move comes two weeks after the apex bank collected N216.1bilion from 26 lenders for also failing to meet CRR targets and a month after it debited the same number of banks N459.7 billion, again for not meeting their CRR obligations

 

 

In April, the CBN imposed CRR debits to the tune of N1.4trillion on 28 commercial and merchant banks.

 

 

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 CBN imposed the latest debits, like all the recent ones, ahead of a foreign exchange auction on Friday.  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 just 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 Sunday Telegraph on condition of anonymity.

 

 

A banker, who did not want to be named, also said the debits, which have become a fortnightly affair, have significantly impacted liquidity in the system.

 

 

In fact, banking sources said that liquidity is now below N100 billion, a development which has left a lot of lenders cash strapped.

 

 

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.

 

 

 

In a bid to curb surging demand for forex, the CBN had on March 20, adjusted the official naira exchange rate from N307 to N360 to a dollar and also altered it on the Investors and Exporters (I&W) window, as well as the Bureaux De Change (BDC) segment of the market, from N366 to N380 to a dollar and N360 to N380 per dollar respectively.

 

 

Indeed, on Friday, there were indications yesterday that the CBN  had further adjusted the naira’s official rate from N360/$1 to N380/$1 after it instructed bidders at its Secondary Market Intervention Sales (SMIS) to increase their bidding price to N380/$1 from N360/$1. The SMIS is the market where importers bid for forex using Letters of Credit and Form M. It was established by CBN for importers to ease the pressure faced by businesses in the foreign exchange market through sales of foreign currency to authorized dealers (wholesale) or to end users through Authorized dealers.

 

 

Dealers said the CBN’s action shows that it is moving closer to achieving its objective of exchange rate unification.

 

 

The CBN Governor, Mr. Godwin Emefiele had informed investors at a Citibank conference recently that the apex bank was targeting exchange rate unification around the I&E forex window, which is also known as the Nigerian Autonomous Foreign Exchange Market (NAFEX).

 

 

He was quoted by a national daily as saying that: “What we mean by exchange rate unification is moving towards the Nigerian Autonomous Foreign Exchange Market (NAFEX). NAFEX is our dominant market for the purchase and sale of forex and it is a free market where everybody is free to sell their dollars and those who want to buy are free to buy dollars.

 

 

“That means that whether you are a business man, a bank, CBN, and you have dollars, you can bring it to the market to sell and if you want to buy dollars you can come to the market. Like some of you must have seen, three years before 2019, we saw a relatively stable forex market because the NAFEX rate and even the rate at which the Central Bank transacts business does outside the NAFEX were substantially close to each other. So, the CBN will continue to pursue unification around the NAFEX.”

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