CBN levies banks $3.9bn to mop up liquidity, support Naira

Web Editor | ConsumerConnect

The Central Bank of Nigeria (CBN) has collected N1.4 trillion ($3.9 billion) from banks with excess cash holdings as part of measures to support the currency.

Reuters reports bank sources said the directive came as the Naira began hitting new lows on the over-the-counter spot and black markets.

Since last month after the Apex Bank adjusted its official rate, it implies a 15 percent devaluation to absorb the impact of an oil price crash triggered by the Coronavirus pandemic.

The Naira recently touched 420 per United States (US) Dollar on the black market for the first time since February 2017, 14 percent weaker than the official market rate.

The currency was quoted at N386.33 on the spot market Friday, April 24.

The report stated that regarding the non-deliverable forward market, one-year Dollar/Naira forwards crossed N500 per Dollar during the week.

In January 2020, the CBN raised the Cash Reserve Ratio (CRR) that banks must hold by 500 basis points to 27.5 percent, the first rise in four years to curb excess liquidity in the banking system, which it said was contributing to inflation.

Bankers Friday said the CRR debit was more than 27.5 per cent and that it was not related to a penalty set for lenders that failed to meet a regulatory loan-to-deposit target.

Banking credit totalled N260.17 billion at Friday’s open from 817.69 billion Naira the previous session, central bank data showed.

Banks have been awash with cash after the government Wednesday, April 22 released 780.9 billion Naira to states under a March budget payment.

The nation’s 28 commercial and merchant banks were affected by the higher debit.

Zenith Bank had the highest amount parked at the central bank at N355.95 billion, followed by First Bank with N208.1 billion and United Bank for Africa with N204.75 billion.

Standard Chartered Bank was charged N120.65 billion and Stanbic IBTC N143.97 billion.

The bank uses cash reserve levies to mop up liquidity. It often re-injects the liquidity to stabilise markets.

The report noted, however, that it was not immediately clear the reason for the levy, especially at a time when lenders are dealing with the fallout of the novel Coronavirus Nigeria, Africa’s biggest economy.

Meanwhile, the Central Bank of Nigeria is said to have rolled out a 1 trillion Naira stimulus to boost the economy and cut rates on soft loans granted to some sectors, but has not said how it would fund the interventions.

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