UBA GTB Zenith Access and Other banks News: The Central Bank of Nigeria (CBN) announced on Friday that it will switch to a weekly system and stop deducting the Cash Reserve Requirements (CRR) from bank deposits daily.
The goal of the initiative is to improve commercial banks’ planning, monitoring, and record-aligning with CBN directives—despite the CBN’s announcement that it will develop a new framework for CRRs.
This was revealed in a February 2, 2024, circular to all banks, issued by the acting director of the banking supervisory department, Adetona S. Adedeji.
The banks and financial institutions regulator has defined a structured strategy for the implementation of the new Cash Reserve Requirement framework.
According to analysts, the suggested modifications would give banks more clarity on the anticipated debits, promoting openness and facilitating improved financial planning. The change is perceived as a break from the prior dependence on numerical targets, providing banks with a more concrete comprehension of the possible impact on CRR.
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The only thing that is altering is when extra CRR (for non-compliance) is computed and debited. LDR compliance will now be evaluated every week as opposed to daily, which causes bankers headaches, according to Abiodun Keripe, managing director of Afrinvest Research and Consulting.
According to him, the CRR is a tool for monetary policy, and if it needs to be stopped at all, several criteria need to be taken into account.
As a result, the CBN stated that growth in banks’ weekly average adjusted deposits will be subject to the current 32.5 percent ratio. The goal of this incremental strategy is to give the CRR a gradual adjustment in response to the increase in bank deposits.
The CBN will impose a CRR fee of 50% on the lending shortfall for banks that don’t satisfy the minimum Loan to Deposit Ratio (LDR) standard to promote lending activity.
The rigorous devotion to maintaining a 60 percent loan-to-deposit ratio raised questions among analysts.
They contend that pressuring banks to expand lending may not be in line with economic realities given the state of the credit market today. There is concern that these policies would lead to a notable expansion of the money supply, which might potentially conflict with the central bank’s efforts to target inflation.
Opponents argue that the Loan Deposit Ratio (LDR) should be completely abandoned because Tier 1 banks already have a sizable percentage of their assets in liquid assets. Sixty percent of these institutions’ assets are liquid, while forty percent are loans. It is argued that under the LDR system, encouraging banks to provide additional loans could result in unneeded credit expansion and client deposit movements.
Relationship manager for corporate banking at FSDH Merchant Bank Ayodele Akinwunmi underlined the opaqueness of the CRR, which now takes 32.5 percent out of each deposit. Ayodele voiced worries about the CRR policy’s ambiguity, pointing out that the CBN’s decision to stop daily CRR debits is intended to improve monetary policy’s clarity and transparency. The CBN’s decision demonstrates its dedication to transparency by enabling banks to more effectively plan and comprehend their financial situations.
Although the new policy’s exact contents have not yet been made public, he stated that because of its transparency, banks are expected to support it. It is anticipated that this change will compel banks to adopt a more proactive lending approach, in line with the administration’s demands for more transparency and economic stability. He continued, “The discontinuation of daily CRR debits is perceived as a calculated step to control money in the system and foster a more transparent and understandable monetary policy landscape.”
The CBN guarantees banks that comprehensive details about the levies imposed and the reasoning behind them will be given to ensure clarity and comprehension.
The CBN stated in the circular that it wants to improve compliance, transparency, and efficiency in the banking industry by streamlining the CRR framework.