The Central Bank of Nigeria (CBN) has announced its decision to discontinue daily cash reserve requirement (CRR) debits on deposits held in commercial banks, according to a circular titled ‘Cash Reserve Requirement Framework Implementation Guidelines’ signed by the Acting Director of the CBN’s Banking Supervision Department, Adetona Adedeji.
CRR mandates that banks reserve a fraction of their customers’ deposits in vault cash, which they are prohibited from using for daily operational activities such as investments and loan disbursements.
This requirement serves as one of the monetary policy tools used by the CBN to regulate the circulation of money in the economy, particularly when banks’ liquidity decreases.
The decision to cease daily CRR debits comes alongside plans to implement an updated CRR mechanism, as outlined in the circular.
The CBN stated that this new approach aims to enhance banks’ capacity for planning, monitoring, and aligning their records with the CBN.
“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 circular stated.
Under the updated framework, two phases will be implemented:
- Phase I: Utilization of the Incremental Approach, where the extant ratios (commercial banks 32.5% and merchant banks 10%) will be applied to increases in the banks’ weekly average adjusted deposits.
- Phase II: 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 previous correspondences from the CBN.
The CBN assured banks that it will provide them with detailed information on the applied charges and the rationale behind their computation.
