CBN stops Cash Reserve Ratio, adopts new measure

By Mathew Brangyet

The Central Bank of Nigeria (CBN) said it will discontinue the daily Cash Reserve Ratio (CRR) debits and adopt an updated Cash Reserve Requirement mechanism.

The move is intended to facilitate deposit money banks’ capacity for planning, monitoring, and aligning their records with the apex bank, it stated.

The central bank disclosed this in a circular titled, ‘Cash Reserve Requirement Framework Implementation Guidelines’ signed by its Acting Director, Banking Supervision Department, Dr Adetona Adedeji recently.

The percentage of cash required to be kept in reserves as against the bank’s total deposits is called the Cash Reserve Ratio.

The implementation of the new Cash Reserve Requirement framework will follow a structured process as outlined by the CBN.

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“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 circular reads.

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