Why does the central bank of Nigeria charge commercial banks?

The news

  • The Central Bank of Nigeria debited ₦838.32 billion from 15 banks for failing to meet the minimum cash reserve ratio.
  • Some affected banks include First Bank, Zenith Bank, Access Bank, Union Bank, United Bank for Africa, Polaris Bank and Keystone Bank.
  • The Central Bank of Nigeria (CBN) announced in September that it was raising the CRR to 32.5% as part of its efforts to curb inflation and currency depreciation in the country.

The CBN charged 15 banks N838.32 billion for failing to meet the minimum cash reserve ratio (CRR) threshold. It is according to a report by Nairametry.

Banks involved include Zenith Bank (₦270 billion), Access Bank (₦205 billion), United Bank for Africa (₦134 billion), FCMB (₦90 billion), First Bank (₦33 billion), Union Bank (₦29 billion). billion), Keystone Bank (₦14 billion), Titan Bank (₦11.6 billion), Polaris Bank (₦10 billion), Nova (₦5.5 billion), Unity Bank (₦1 billion) , Heritage Bank (₦470 million), FBN Microfinance Bank (₦460 million) and Suntrust Bank (₦92 million).

The CRR is the percentage of customer deposits that must be kept with the Central Bank. At its current rate of 32.5%, commercial banks must deposit ₦325 for every ₦1,000 deposited by their customers.

Control inflation and currency depreciation

After a monetary policy committee meeting in September 2022, Godwin Emefiele, the CBN Governor, disclosed that the bank was increasing its CRR from 27.5% to 32.5% as part of its measures to mop up liquidity and tackle rising inflation in the country. In addition to raising the CRR, the CBN raised the benchmark interest rate to 15.5%.

He said banks that fail to meet the new requirement will be barred from the forex market until they comply. The CBN Governor also said that the increased liquidity in the economy was one of the reasons for the rising inflation rate and the depreciation of the currency.

Raising the CRR is a common method to regulate the flow of money in an economy. For banks, this affects the funds available to them and their ability to extend credit. It could also lead banks to raise their interest rates. However, it also ensures that banks have a healthy reserve to draw on if customers demand their deposits.

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