CBN Adopts New Cash Reserve Measure

The Central Bank of Nigeria (CBN) on Friday said that it will no longer be debiting daily amounts from the Cash Reserve Ratio and will instead be implementing an improved Cash Reserve Requirement method.

Naija News reports that the action is meant to make it easier for banks to plan, monitor, and align their records with those of the central bank, according to the CBN.

This directive was issued by the CBN on Friday in a circular titled “Cash Reserve Requirement Framework Implementation Guidelines,” which was signed by Dr. Adetona Adedeji, acting director of the department in charge of banking supervision.

The Cash Reserve Ratio is the proportion of required cash held in reserves to total deposits made by the bank.

A methodical approach, as delineated by the CBN, shall be employed in the execution of the new framework for cash reserve requirements.

The statement read, “The determination of the segment of deposits subject to sterilisation with the CBN as CRR will follow the processes outlined below:

“Phase 1 – Utilisation of the Incremental Approach: The extant ratios (commercial banks 32.5% and merchant banks 10%) will be applied to increases in the banks’ weekly average adjusted deposits.

“Phase 2 — CRR levy of 50% of the lending shortfall will be enforced for banks that do not meet the minimum Loan to Deposit Ratio (LDR) as per our correspondence to all banks referenced BSD/DIR/GEN/LAB/12/049 dated September 30, 2019.”

The CBN further stated that banks will receive information about the levies imposed and the reasoning behind them.