CBN stops daily CRR debits from banks’ deposits

The Central Bank of Nigeria (CBN) says it will stop daily cash reserve requirement (CRR) debits of deposits in commercial banks.

CBN said this on Friday, in a circular titled ‘Cash Reserve Requirement Framework Implementation Guidelines,’ signed by Adetona Adedeji, acting CBN director, banking supervision department.

CRR mandates banks to reserve or hold a fraction (or a combination) of their customers’ deposits in the vault cash. The banks are restricted from using the reserved funds to conduct their daily operations, such as investments and loan disbursements.

CRR is one of the monetary policy tools the CBN uses to limit the circulation of money or supply in the economy, as banks’ liquidity drops.

In the last monetary policy committee (MPC) meeting of the CBN in July 2023, the CRR was retained at 32.5 percent.

In the circular, CBN said it is ceasing the daily CRR debits, with plans to adopt an updated CRR mechanism.

“The Central Bank of Nigeria (CBN) is ceasing daily CRR debits and will be adopting an updated Cash Reserve Requirement (CRR) mechanism that is intended to facilitate your capacity for planning, monitoring, and aligning your records with the CBN,” the apex bank said.

“The determination of the segment of deposits subject to sterilization with the CBN as CRR will follow the processes outlined below:

“Phase I – Utilization 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/DlR/GEN/LAB/12/049 dated September 30, 2019.”

CBN said it will provide banks with details of the applied charges and their underlying computation rationale.

The decision came after the currency in circulation increased by N2.26 trillion in 2023, from N1.38 trillion in January to N3.65 billion in December.

In 2022, currency in circulation reduced by N275.97 billion, from N3.28 trillion in January to N3.01 trillion in December.