By Omodele Adigun
Palpable fear has gripped the financial markets as the Central Bank of Nigeria(CBN) slamed an estimated N7trillion debit on the banking sector in keeping with the new Cash Reserve Ratio (CRR) it introduced at the last Monetary Policy Committee meeting in October.
This was just as the Nigeria’s stock market closed negative for the just- concluded third quarter of the year.
Already, the new CRR debit is said to have forced the banks to raise their lending rates by as much as 3 per cent to about 38 per cent penultimate week after the CBN debited their accounts
The immediate implication of the new CRR measure, according to some analysts, is the resduction in the amount of money available to banks for lending in the economy as CBN battles to tame inflationary pressure (currently at 20.52 per cent as of August) with an aggressive contractionary monetary policy stance.
In response to the CBN rate hike, banks commenced an upward review of lending rates by 3 to 4 per cent while increasing interest on customers’ deposits by only 1 per cent.
Briefing the media at the end of the last Monetary Policy Committee (MPC) meeting Tuesday in Abuja,the CBN governor, Godwin Emefiele, had directed all banks in the country to ensure that they have sufficient liquidity in their reserve to meet the new CRR target.
“We expect that all the banks in Nigeria must fund their account by Thursday, 48 hours from now. We will debit them for CRR to a minimum of 32.5 per cent,“This means that we are going to take liquidity out of their vaults by Thursday,” said Emefiele.
This follows a 500 basis point or 5 per cent raise in the minimum regulatory limits to 32.5 per cent, up from 27.5 per cent during the MPC meeting.
CRR is the minimum amount as specified by CBN to be maintained by the banks out of the public deposits with the regulator.
With the new development ,our reliable source in one of the banks said interest rates on new loans have risen to as much as 35 per cent while existing loans with floating rates were also being repriced
“Money market rates continued to fluctuate, reflecting liquidity conditions in the banking system. Consequently, the monthly weighted average Open Buyback (OBB) rate declined to 13.21 per cent in August 2022, from 14.15 per cent in July, while the Inter-bank Call rate increased to 15.00 per cent in August 2022, from 13.00 per cent in July.
The Capital Adequacy Ratio (CAR) and the Liquidity Ratio (LR) remained above their prudential limits at 13.4 and 40.1 per cent, respectively, in August 2022” noted the apex during the MPC meeting.