CBN Roundtable
The total claims Nigerian commercial banks have against the Central Bank of Nigeria rose to N21.5 trillion as of June 2022 compared to N19.9 trillion as of the end of December 2021.
This represents an 8% increase in the last year or a N1.6 trillion increase in 6 months.
Bank deposits with the central bank have more than doubled since 2019 rising from about N9.9 trillion in December 2018 to about N21.5 trillion in June.
This follows the central bank’s policy of sequestering bank deposits as cash reserve requirement debits (CRR).
The deposit with the central bank is further divided into “currency”, “reserve deposits” and “other claims” made up of N513.4 billion, N11.8 trillion, and N9.1 trillion respectively.
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The Central Bank of Nigeria introduced a policy that forces banks to retain up to 30% of their deposits in cash reserve requirement, meaning that the deposits are not accessed by the banks for loans and advances.
The apex bank does not officially reveal what it does with the money and since it does not publish its annual reports, it is often difficult to deduce.
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While the CBN does not state how it funds its intervention or development finance programs it often provides insights into how it spends money. At the last Monetary Policy Meeting communique it explained as follows;
Large amounts of cash being sequestered have a three-fold impact on the Nigerian economy.
1) Capital Flow restriction: it restricts the amount of capital flow-through available for the economy, by sequestering funds banks are unable to support “viable” and productive private ventures through loans.
This restriction on loans means the economy is not able to grow in a meaningful manner. Lending to productive sectors such as trade and manufacturing tends to boost economic growth compared to funding government salaries.
2) Lost dividend for bank investors: Sequestered funds result in lost revenue for banks. Consequently, with div payout ratios ranging from 14% to 40%, this means retail investors are losing out on dividends
3) Capital Misallocation: finally, the suspicion that these sequestered funds are being used for interventions, simply amplifies the risk of capital misallocation. Banks as financial intermediaries are better placed to match liabilities with assets. This is done through extensive credit risk assessments to ensure once loans are created, funds are assigned to productive ventures
While Nigeria’s Central bank intervention has helped spur economic growth and saved tens of thousands of jobs, they are neither equipped to create nor administer retail credit effectively. This has been evidenced across the world.
All I want to hear is economy and policy stability,there should not be hyper inflation and high lending rate,let there be influx of excess liquidity liquidity liquidity liquidity towards sme
Slm
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© 2022 Nairametrics
© 2022 Nairametrics