How CBN’S Frequent Debits of Banks Over CRR/LDR Affects You

The Central Bank of Nigeria (CBN) has been recently trigger-happy when it comes to issuing debits on banks that breached the Cash Reserve Requirement (CRR) and Loan-to-Deposit Ratio (LDR). The latest deductions by the CBN was a sum of N219 billion for breaching the apex bank’s CRR guideline. Just halfway into the year, the CBN has already made bank debits totalling N2.1 trillion in 2020, for CRR or LDR alike. The CBN took N459.7 billion from the banks some three weeks ago and N1.4 trillion in April.

Quite frankly, these persistent CBN debits do not bode well for the Nigerian economy especially with the pandemic-induced recession. Most importantly, the immediate burden of these constant debits will be carried not just by the banks but by you and I. Here’s why:

• The debits reduce liquidity in the banking system, therefore there is less cash circulating within the banking system and it affects their lending ability.

• As a result, bank lending becomes more expensive for individuals and businesses, especially SMEs which are the majority of employers in Nigeria.

• Therefore businesses who have borrowed from banks at these high rates will pass the higher cost to consumers, which sparks a chain of inflation. This defeats the purpose of a soft interest-rate regime.

Recently, the CBN has been self-sabotaging, contradicting its policies with counter-productive measures. Just like USSD charges and POS Stamp duty have been a hitch to the cashless policy. These debits defeat the purpose of CBN’s efforts to boost bank lending. The LDR policy was purposed to improve lending such that it mandates banks to lend 65% of deposits. The CBN also cut its policy rate to 12.5% in May to achieve the same purpose. Therefore, a high CRR is a slap to the face of CBN’s lending objective. Although there remains significant liquidity in the system, if these irrational debits continue, there may be severe cause for alarm.