The Central Bank of Nigeria (CBN) has introduced a modified mechanism for the implementation of the cash reserve requirement (CRR) for all banks in the country.
CRR is one of the monetary policy tools the apex bank adopts to help limit money circulation or supply in the economy to tackle banks’ liquidity flow challenges.
In a letter titled: “Cash Reserve Requirement Framework Implementation Guidelines” to all banks in the country on Friday, the CBN said the introduction of the new policy framework was to boost the capacity of the banks to plan, monitor and align their records with the CBN to ensure a smooth handling of the persisting liquidity problem in the financial system.
In the letter signed by the Acting Director of Banking Supervision Department, Adetona Adedeji, the CBN said the determination of the segment deposits subject to its sterilisation as CRR would henceforth be determined in two phase.
In Phase 1, the CBN said it would involve the utilization of the incremental approach, which would require the application of the extant ratios of 32.5 percent for commercial banks and 10 percent for merchant banks as the weekly average adjusted deposits of banks increases.
For Phase 2, the CBN said CRR levy of 50 percent of the lending shortfall would be imposed and enforced for banks that fail to meet the minimum Loan to Deposit Ratio (LDR) sequel to a directive in its correspondence to all banks dated September 30,2019 with reference No. BSD/DIR/CEN/LAB/12/049.
To guide the banks in the implementation of the new guidelines, the apex bank said it would provide the details of the applicable charged and their underlying computation rationale.
With the persistent liquidity problems being experienced in the country’s financial system, the CRR, which stipulates the rate of cash reserve the banks are expected hold with CBN for lending purposes was 30 percent until July 2023 when it was adjusted to 32.5 percent to help mop up excess liquidity in the sysyem.
