As part of efforts to support economic recovery and propel the quest to return to the growth path, the Central Bank of Nigeria (CBN) has approved the release of banks’ excess cash reserve requirement (CRR), which is above the regulatory minimum.
However, this, it stated, would be done through its issuance of 90-day CBN Special Bills.
The CBN stated this in a letter addressed to all banks, dated December 1, 2020, signed by its Director, Banking Supervision, Mr. Bello Hassan.
The CRR is the minimum amount banks are expected to retain with the CBN from their customer deposits.
At last month’s Monetary Policy Committee meeting, the CRR was retained at 27.5 per cent.
The central bank had been sanctioning banks that failed to comply with 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 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 CBN window and will qualify as liquid assets.
“The CBN will continue to monitor banks’ utilisation 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.