CBN Debits Banks N226b Over Cash Reserve Ratio Breach

The Central Bank of Nigeria (CBN) has debited banks’ accounts to the tune of N226 billion for breaching  Cash Reserves Ratio (CRR) policy.

The move was designed to reduce the bulk of idle funds in the banking system and curb speculations on the local currency, which has suffered rapid depreciation on the parallel market in recent times.

The local currency declined to N480 to the dollar on the parallel market on Saturday against N478 a dollar on Friday, traded flat at N379 to the dollar on the CBN window and N385.83 to the dollar on the Investors’ and Exporters’ (I&E) forex window on Friday against N385.50 the previous day.

Nigerian banks are required to set aside 27.5 percent of their deposits as liquid cash in non-interest paying lodgment with the regulatory bank.

Some banks are also penalised for failing to comply with the CBN 65 percent Deposit to Loan Ratio (LDR), which was designed by the regulator to compel banks to lend to the productive sector of the economy.

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Zenith Bank, First Bank, United Bank for Africa (UBA), Guaranty Trust Bank and Access Bank, which are the country’s top five banks are the most hit by the debit by the regulatory bank.

The CBN slammed N59.5 billion debit on GTbank, which was the highest, Zenith Bank was hit with N30 billion debit, N20 billion was debited from the accounts of the First Bank, while the regulatory bank withdrew N10 billion and N18 billion from the vaults of UBA and Access Bank, respectively.

Nigeria’s banking regulator had last year raised the loan-to-deposit ratio to 65 percent in a bid to boost credit to the private sector and increase growth in Africa’s biggest economy.

The CBN also raised the CRR to 27.5 percent from 22.5 percent at the end of its Monetary Policy Committee (MPC) meeting in January to curb excess liquidity in the banking system and curtail pressure on the local currency against dwindling foreign exchange reserves.

As part of the penalty for not meeting up with the 65 percent LDR as stipulated by the regulator, the CBN will deduct the balance from the defaulting bank’s deposit with it as CRR.