CBN Releases Banks’ Excess CRR to Spur Economic Recovery

*Introduces 90-day special bills
*Dealers, analysts welcome new policy on Diaspora remittances

As part of efforts to support economic recovery and propel the quest to return to the growth path, the Central Bank of Nigeria (CBN) has approved the release of banks’ excess cash reserve requirement (CRR), which is above the regulatory minimum.

However, this, it stated, would be done through its issuance of 90-day CBN Special Bills.

The CBN stated this in a letter addressed to all banks, dated December 1, 2020, signed by its Director, Banking Supervision, Mr. Bello Hassan, a copy of which was obtained by THISDAY yesterday.

The CRR is the minimum amount banks are expected to retain with the CBN from their customer deposits.

At last month’s Monetary Policy Committee meeting, the CRR was retained at 27.5 per cent.

The central bank had been sanctioning banks that failed to comply with its minimum loan-to-deposit ratio (LDR) policy, among others, by imposing higher CRR on them.

This, analysts had said, was constraining banks’ ability to effectively perform their financial intermediation role.

But in the latest letter titled: “Release of Cash Reserve Requirement through the Issuance of CBN Special Bills,” the banking sector regulator stated: “The CBN on November 30, 2020, approved the release of the excess above regulatory minimum CRR of banks. This is part of measures to improve liquidity and support economic recovery through the increased extension of credit facilities to the real sector. This will be accomplished through the issuance of CBN Special Bills.”

It explained that the features of the special bills include tenor of 90 days, subject to rollover at the instance of the CBN, as well as zero-coupon, with an implied yield to be worked out by the CBN.

In addition, the instrument will be tradable and discountable at CBN window and will qualify as liquid assets.

“The CBN will continue to monitor banks’ utilisation of the liquidity injection from the CRR release to ensure optimal use for transactions that support economic recovery and growth,” it added.

Also in a circular dated December 1, 2020 entitled: Introduction of Central Bank of Nigeria Special Bills, signed by Hassan, the bank reiterated the features of the special bills, saying it “will continue to ensure optimal regulation of systemic liquidity and promote efficient financial markets in support of economic recovery and sustained growth.”

CBN Governor, Mr. Godwin Emefiele, had recently predicted a two per cent growth in the country’s Gross Domestic Product (GDP) for 2021.

Nigeria’s real GDP contracted for the second consecutive quarter by 3.62 per cent in the third quarter of the year, compared to a growth of -6.10 per cent, which showed that the country has entered its second economic recession in five years.

Dealers, Analysts Welcome New Policy on Diaspora Remittances

Meanwhile, the Association of Bureau De Change Operators of Nigeria (ABCON) and some financial market analysts have expressed support for the new Central Bank of Nigeria (CBN) policy that grants unfettered access to forex from Diaspora and other money transfer remittances like Western Union and MoneyGram.

Speaking in separate interviews with THISDAY, they stated that the new policy would enhance liquidity in the forex market.

ABCON President, Alhaji Aminu Gwadabe, advised forex speculators hoarding dollars to sell now, saying, “Otherwise they will lick their wounds.”

According to him, with the new policy, the monopoly in the remittance market has been broken.

Gwadabe said: “If you were receiving dollars from the bank at about N390 to a dollar and now you are free to receive your dollar as it was sent, you are free to walk into any BDC operator and get it at the prevailing market rate.

“So, there will be liquidity and also the monopoly has been broken because before recipients of such funds didn’t have an option because they are forced to collect naira from the banks. This is a welcome development and we commend the CBN.”

Also, the Senior Economist/Head of Research and Strategy, Greenwich Merchant Bank Limited, Mr. Ayodeji Ebo, described the new policy as a positive move, saying it will help divert remittances back to the official channels.

According to him, the difference in forex rates has always been a disincentive.
“I think it will also increase dollar liquidity in the banks as people would now be more comfortable to channel these funds through the banks. So, it is a step in the positive direction,” he stated.

Head of Research at Agusto & Co, Mr. Jimi Ogbobine, explained that the policy would help boost dollar liquidity in the economy and ease forex pressure in the parallel market.

“So, before now if you receive your money from an international money transfer operator, they would give you naira pegged at around N390 to a dollar. If you walk out of that bank where you had collected that money, if it was dollar you received, you would have changed that money at a prevailing parallel market rate.

“So, because of the difference, you would find a way to cut off the official channel and start receiving the money through informal channels, instead of through the banks.

And when you receive the money, you go to the parallel market to get the maximum rate.

“What the central bank would achieve with this policy is to reduce the pressure and cut off the arbitrage with more retail investors being able to access their dollars through the right channels. We are going to see a possible increase in supply in the parallel market, which would ultimately moderate forex rates, especially as we go into the yuletide season when we are going to have many Nigerians in the Diaspora coming back home,” Ogbobine explained.

Also, Head of Research at United Capital, Mr. Wale Olusi, said the policy is “going to ease the pressure in the parallel market.

“This is a short-term policy that if sustained will be beneficial to the market in the long run. Remittances in Nigeria yearly are over $20 billion. Remittances can roughly take about 40 per cent of the demand for import.

“Those can actually, to a large extent, save the central bank a lot of headaches if we are able to cement the structure around remittances. So, I think it is a brilliant move,” he said.

The new CBN policy allows beneficiaries of Diaspora remittances through IMTOs to henceforth receive such inflows in the original foreign currency through the designated bank of their choice.

The CBN explained that the new regulations were part of efforts to liberalise, simplify and improve the receipt and administration of Diaspora remittances into Nigeria.

The central bank announced the new policy in a circular titled: “Amendment to Procedures for Receipt of Diaspora Remittances,” dated November 30, 2020, that was signed by its Director, Trade and Exchange Department, Dr. Ozoemena Nnaji.