CBN Imposes New CRR Levy on Banks to Boost Lending

The Central Bank of Nigeria (CBN) has introduced a new Cash Reserve Requirement (CRR) levy on banks that fail to meet the minimum Loan to Deposit Ratio (LDR). The CBN said that the new policy is aimed at improving the operational efficiency of the banking sector and encouraging lending to the real sector.

The CRR is the percentage of banks’ deposits that they are required to keep as cash with the CBN. The CBN has set the CRR at 32.5 per cent for commercial banks and 10 per cent for merchant banks. The LDR is the ratio of banks’ loans to their deposits. The CBN has set the LDR at 65 per cent for all banks.

The CBN issued a circular titled Cash Reserve Requirement (CRR) Framework Implementation Guidelines, which was sent to all banks in Nigeria. The circular stated that the CBN is stopping the daily CRR debits, and will adopt a new CRR mechanism that will help banks to plan, monitor, and align their records with the CBN.

The circular explained that the new CRR mechanism will consist of two phases:

  • Phase 1: Utilization of the Incremental Approach. The existing CRR ratios (32.5 per cent for commercial banks and 10 per cent for merchant banks) will be applied to the increases in the banks’ weekly average adjusted deposits.
  • Phase 2: A CRR levy of 50 per cent of the lending shortfall will be imposed on banks that do not meet the minimum LDR as per the CBN’s letter to all banks referenced BSD/DIR/GEN/LAB/12/049 dated September 30, 2019.

The CBN said that it will provide the banks with the details of the charges and their calculation methods.

The CBN’s new CRR policy is expected to motivate the banks to lend more to the productive sectors of the economy, such as agriculture, manufacturing, and small and medium enterprises. The CBN hopes that this will stimulate economic growth and create more jobs in the country.

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