The reserve requirement is the amount of funds a bank must hold or reserve either as cash in its vault or as a deposit at the CBN.
The Central Bank of Nigeria and the Bankers’ Committee last week in Lagos agreed that instead of out rightly lowering interest rate, it is better to create single-digit interest funds that would be implemented to long-term credit at nine per cent and a minimum tenor of seven years.
Addressing journalists at the end of the committee meeting, the Director of Banking Supervision, Mr Ahmad Abdullahi, said the idea is to enhance job creation.
He said, “Agric and manufacturing are the initial sectors that are being considered. A bank can apply if there is a job creating sector that bank is operating in; it may be considered.
“The idea is that we can refund the CRR of a bank that has engaged in lending in a new project or an existing one in the agriculture or manufacturing sector as a way of utilising the CRR.
“So anytime a bank lends to manufacturing or agric sector operator, at the rate the CBN has prescribed it will have its CRR refunded up to the amount it has lent. The guidelines are coming up any moment from now.
“It is in two folds; there will be commercial papers (CPs) and corporate bonds. On the other hand, there will be direct lending by the banks to SMEs that are in those sectors.”
The Chief Executive Officer of Guaranty Trust Bank Plc, Mr Segun Agbaje, said the initiative is expected to create jobs and enhance economic growth.
Agbaje said, “The CBN has been very gracious and said on these sectors, if you have companies that are doing new capital expenditures and expansions, you (the banks) would be able to lend using some of your CRR at nine per cent.
“These are not short-term loans; they are long term loans of seven-year loans and two year moratorium on principal.”
He applauded the initiative saying, “It will probably be the first time in the history of this country where manufacturers would be able to take fixed interest rate loans for seven years, which means they will be able to plan.
“The volatility that they fear for all kinds of risks will be taken out and I think these are very laudable steps in improving and growing the economy.”
He added, “So, it will allow people to do capital expenditure, which is more long-term. It would give people single-digit interest rate loans, where bonds could go as far as 10 years.”
Also, the Executive Director, Finance, First City Monument Bank, Mrs Yemisi Edun, said, “The CRR that is taken from banks would be positively deployed to grow the real sector as well as the agriculture sector.”
Edun added, “This is very positive for the economy and also positive for banks because we would be able to access these funds and earn on it. And because it would be coming at single digit rate, it would be positive for the economy.
“The focus is to ensure that the economy grows. Now that we have achieved stability, we need to see a positive trend of growth and that is what we are committed to do at this time.”
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