The Central Bank of Nigeria on Friday debited the accounts of many banks in Nigeria in line with its Cash Reserve Ratio (CRR) compliance requirement.
This time around, about 14 banks were debited to the tune of N118 billion.
These constant CRR debits, which typically herald the apex bank’s FX auctions have served to significantly reduce liquidity in the system.
An insider who spoke about the latest debit said “the liquidity within the system is now very tight”. As a matter of fact, liquidity is now reportedly below N100 billion.
Apparently, the CBN is using these weekly CRR debits to mop up liquidity in the system. In other words, these debits help to prevent banks from coming to the FX auctions with lots of cash. Too much FX demands tend to put the apex bank under pressure.
Note that inasmuch as the CBN is trying hard to stabilise the FX markets, these constant debits have inevitably affected banks negatively by leaving them cash-strapped.
Reports say that some bankers are complaining about the liquidity squeeze which they claim impairs the banks’ ability to trade and make money for shareholders.
According to one source, “These are huge amounts that are leaving the banking sector. It’s a squeeze on the banks. A bank like First Bank, for instance, has about N1.4 trillion in CRR with the Central Bank. And there is Zenith Bank with equally as much as N1.5 trillion.
“These are monies that banks can potentially put in loans at 52% at 30%, or even put in money market instruments at maybe 10%. So, for a shareholder of these banks, this CRR debits are impairing the banks’ ability to increase their earnings because now are not able to use the funds that are legitimately theirs to create money for their shareholders”.
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