By Chinwendu Obienyi
To boost long term financing, the Central Bank of Nigeria (CBN) has announced a reduction in the Cash Reserve Requirement (CRR) of merchant banks to 10 per cent from the current 32.5 per cent.
The apex bank in a circular dated July 14, 2023, and signed by CBN Director, Banking Supervision Department, Haruna Mustafa, also stated that the change will take effect from August 1, 2023.
CRR is a specified percentage or minimum fraction of the total deposits of customers. Commercial banks have to hold reserves either in deposits or cash with the central bank.
Notably, an increase or reduction in the CRR could have several effects on banks and the overall economy. An increase in CRR will reduce the banks’ capacity to lend to borrowers whereas a reduction in CRR will make more funds available to the banks to lend to customers.
The CBN explained that the reduction in the CRR was expected to boost the banks’ ability to avail of increased infrastructure, real estate, and other long-term financing needed to support the development of the Nigerian economy.
The circular with reference number: BSD/DlR/PUB/LAB/016/018, captioned “Review of the Cash Reserve Requirement (CRR) Regime for Merchant Banks,” which was addressed to all merchant banks in Nigeria, read, “The Central Bank of Nigeria (CBN) hereby informs all Merchant Banks that it has approved a reduction in their cash reserve requirement from 32.5 per cent to 10 per cent effective August 1, 2023.
The above regulatory measure is in recognition of the nuanced business model of the Merchant Banks, in particular their wholesale funding structure, regulatory restrictions from the retail market and permissible activities vis-a-vis conventional commercial banks. The measure is expected to boost the banks’ ability to avail increased infrastructure, real sector and other long-term financing needed to support the development of the Nigerian economy”.
The apex bank further stated that the CBN will continue to monitor market developments and implement measures to address unique challenges the merchant banking sector faces.