Why is Nigeria’s central bank debiting commercial banks?

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October 5, 2022
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2 min read
CBN building. Image credit: Businesstimes.ng
CBN building. Image credit: Businesstimes.ng

The news

  • Nigeria’s central bank has debited ₦838.32 billion from 15 banks for not meeting the minimum cash reserve ratio.
  • Some affected banks include First Bank, Zenith Bank, Access Bank, Union Bank, United Bank for Africa, Polaris Bank, and Keystone Bank.
  • The Central Bank of Nigeria (CBN) announced in September that it was increasing the CRR to 32.5% as part of its efforts to curb inflation and currency depreciation in the country.

The CBN has debited 15 banks to the tune of ₦838.32 billion for not meeting the minimum cash reserve ratio (CRR) threshold. This is according to a report by Nairametrics.

The affected banks include Zenith Bank (₦270 billion), Access Bank (₦205 billion), United Bank for Africa (₦134 billion), FCMB (₦90 billion), First Bank (₦33 billion), Union Bank (₦29 billion), Keystone Bank (₦14 billion), Titan Bank (₦11.6 billion), Polaris Bank (₦10 billion), Nova (₦5.5 billion), Unity Bank (₦1 billion), Heritage Bank (₦470 million), FBN Microfinance Bank (₦460 million), and Suntrust Bank (₦92 million). 

The CRR is the percentage of customers' deposits that must be kept with the Central Bank. At its current rate of 32.5%, commercial banks must deposit ₦325 for every ₦1,000 deposited by their customers.

Curbing inflation and currency depreciation

After a monetary policy committee meeting in September 2022, Godwin Emefiele, the CBN Governor, disclosed that the bank was raising its CRR from 27.5% to 32.5% as part of its moves to mop up liquidity and combat rising inflation in the country. In addition to increasing the CRR, the CBN has raised the benchmark interest rate to 15.5%. 

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He stated that banks that failed to meet the new requirement would be barred from the foreign exchange market until they complied. The CBN Governor also said that increased liquidity in the economy was one of the reasons for the rising inflation rate and currency depreciation.

Increasing CRR is a common method to regulate the flow of money in an economy. For banks, it affects the funds available to them and their ability to grant credit. This could also lead to banks increasing their interest rates. However, it also ensures that banks have a healthy reserve to fall on if customers demand their deposits. 

Accidental writer, covering Africa's startup landscape and its heroes. Find me on Twitter @chigo_nwokoma.
Accidental writer, covering Africa's startup landscape and its heroes. Find me on Twitter @chigo_nwokoma.
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Accidental writer, covering Africa's startup landscape and its heroes. Find me on Twitter @chigo_nwokoma.

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