Operational efficiency: CBN overhauls cash reserve policy to boost banking efficiency
…Raises Customs exchange rate to N1,413.62 amidst opposition from importers
…FG dismiss rumours of converting domiciliary deposits to Naira
By Sodiq Adelakun
The Central Bank of Nigeria (CBN) has announced a significant overhaul of its Cash Reserve Requirement (CRR) policy.
The revamped framework, which has been communicated to all banks through an official letter, introduces a shift from the previous daily CRR debits to a more predictable and structured mechanism.
Under the new policy, the CBN has declared an end to the daily deductions from banks’ reserves, a practice that was previously employed to regulate the economy’s money supply.
The updated CRR mechanism is designed to aid banks in better planning and liquidity management, allowing for more accurate monitoring and alignment of their records with the CBN’s standards.
The CBN’s revised approach will continue to apply the existing CRR ratios—32.5 percent for commercial banks and 10 percent for merchant banks. However, the calculation will now be based on increases in the weekly average adjusted deposits, rather than the total deposits.
This adjustment means that the reserve requirement will only affect the additional deposits banks receive over the course of a week, providing them with greater financial flexibility.
In a bid to stimulate more lending to the real sector, the CBN has also introduced a punitive measure for banks that fail to meet the minimum Loan to Deposit Ratio (LDR).
Banks that do not reach the prescribed lending threshold will face a CRR levy of 50 percent on the shortfall amount. This initiative is intended to incentivise banks to extend more credit, thereby supporting economic growth through increased access to finance.
The CBN has assured that it will provide each bank with clear directives on the required reserve amounts and any applicable charges for insufficient lending.
The new linkage of CRR compliance with LDR targets is expected to encourage banks to contribute more actively to the nation’s economic expansion by facilitating a higher volume of loans to businesses and individuals.
The Acting Director of the Banking Supervision Department at CBN, Dr. Adetona S. Adedeji, has signed a circular stating that the framework is in line with the objective of maintaining monetary stability while promoting economic growth.
…CBN raises Customs exchange rate to N1,413.62 amidst opposition from importers
However, the Central Bank of Nigeria (CBN) has once again increased the Customs exchange rate, this time to N1,413.62 per dollar, just a day after an earlier hike.
The new rate, which reflects a significant rise from the previous N1,356.883, is now active on the Customs trade portal.
This latest adjustment, coming on the heels of a substantial 43 percent increase on Friday, has been met with strong resistance from importers and Customs brokers.
The Chief Executive Officer of the Centre for the Promotion for Private Enterprise (CPPE), Dr. Muda Yusuf, has voiced his concern, labeling the increase as “devastating” for businesses in all sectors.
Dr. Yusuf highlighted the dire implications of the 42.5 percent hike in the exchange rate used for import duty calculations, which soared from N952 to N1,413.62.
According to him, the move is likely to exacerbate inflation by raising production and operational costs, further impoverishing the already vulnerable segments of the population.
The CPPE has urgently called on the CBN to reconsider and reverse the rate increase, citing the detrimental impact on the populace and numerous businesses teetering on the brink of collapse.
Dr. Yusuf emphasised the severity of the policy’s immediate implementation, given the current economic challenges and the recent currency devaluation that has pushed the official exchange rate to around N1,400.
Businesses are still reeling from the shocks of these financial adjustments, and the CPPE warns that the compounded effects of the new rate could lead to widespread economic disruptions and dislocations.
“The CPPE recommends that, going forward, the determination of the exchange rate for import duty computation should be treated as a fiscal policy matter and located within the remit of the fiscal authorities which is the finance ministry. This is necessary for proper alignment with extant fiscal policies.
The National Coordinator of the National Association of Government Approved Freight Forwarders (NAGAFF), Alhaji Tanko Ibrahim, told our reporter that the apex bank is not yet done with its fiddling with the Customs exchange rate as it plans to increase it again soon to N1500 per dollar.
“I heard from the grapevine that the CBN plans to push the Customs exchange rate to as high as N1,500 per dollar. That is their target and they are going to do it soon,” he claimed.
…CBN dismiss rumours of converting domiciliary deposits to Naira
In a firm response to widespread rumours, both the Central Bank of Nigeria (CBN) and the Federal Government have categorically denied any intentions to convert the $30 billion in domiciliary deposits into the local currency, naira.
The Minister of Finance and the Coordinating Minister of the Economy, Wale Edun, issued a statement on Saturday, refuting the claims as baseless and entirely false.
The Minister emphasised that such reports are detrimental to the efforts being made to stabilise the economy and rebuild confidence in the naira.The CBN, taking to its official X (formerly Twitter) account on February 3, 2024, also labeled the circulating report as fake news.
The CBN reassured depositors that their foreign currency holdings in domiciliary accounts are secure and there would be no conversion to naira.
In an effort to quell the market’s anxieties, the acting Director of Corporate Communications at the CBN, Mrs. Hakama Sidi-Ali, released a statement condemning the allegations as not only false but also as a deliberate attempt to incite panic in the foreign exchange market.
The government and the central bank have urged the public to disregard such reports and reassured stakeholders that the sanctity of domiciliary accounts remains inviolate.
The clarification comes at a critical time when the government is striving to ensure economic stability and protect the integrity of the national currency.
“The publication of such falsehood. at a time when the government is working to restore economic stability and confidence in the national currency is tantamount to economic sabotage.
“For the avoidance of doubt, I emphasise that depositors’ foreign currency in their domiciliary accounts will not be converted to naira.”
The CBN in its post said, “No plans to convert $30bn domiciliary deposits to naira. This news is fake!’’
The acting Director, Corporate Communications of the CBN, Mrs. Hakama, Sidi-Ali, in a statement described the allegation as false and aimed at causing panic in the foreign exchange market.
She said, “The attention of the Central Bank of Nigeria (CBN) has been drawn to a story published by a national newspaper alleging that the Federal Government is considering converting $30 billion domiciliary deposits to Naira.
“This allegation is absolutely false and aims to trigger panic in the foreign exchange market, which the CBN is working assiduously to stabilize, as evidenced by its recent work and policy directions.
“Similar false narratives have been spread about the work of the CBN over the past few months and it is clear that vested interests are determined to sabotage our efforts.
“We want to assure the general public that CBN is working to build confidence and would never do anything to undermine the currency and the economy.
“We, therefore, urge all stakeholders to disregard stories aimed at causing panic in the system and see them clearly for what they are – acts of national sabotage.
“We wish to advise, in the strongest terms, against the peddling of false reports that have the potential to be disruptive to the economy.
The Bank is the only designated authority for monetary policy changes and will always advise on any policy change(s) before they are brought into operation.
“The CBN is always open to answer questions about our policies.”
Reports had earlier emerged that the Federal Government is considering a policy that will result in the conversion of foreign currencies in domiciliary accounts of citizens to naira to stabilise the national currency, which earlier this week recorded its worst performance in history especially in the official window.
According to the alleged plans, the government is expected to order the conversion of foreign currencies sitting idly in individuals’ and corporate organisations’ domiciliary accounts to naira at a rate to be determined by the CBN.
This is meant to stabilise the naira, which recorded its biggest fall in the official Nigerian Foreign Exchange Market (NAFEM) on Monday, to close at N1,348 per dollar.
The presidency source is reported to have claimed that the problem of forex scarcity and the naira fall was an elite issue, adding that the Federal Government would not fold its arms and continue to watch some individuals hoarding foreign currencies at the expense of the naira.
The Central Bank of Nigeria (CBN) recently issued a new circular addressing suspicions of excessive foreign currency speculation and hoarding by Nigerian banks.
The circular introduced a set of guidelines aimed at mitigating the risks associated with these practices. Titled “Harmonisation of Reporting Requirements on Foreign Currency Exposures of Banks,” the circular expresses the CBN’s concerns regarding the increasing trend of banks holding significant foreign currency positions.
The apex bank accused banks of maintaining excessive foreign exchange positions and had given them until February 1, 2024, to sell off any excess dollars in their possession.
