CRR: Interbank market in shock as CBN sequesters N600bn

There was significant chaos in the interbank space as the Central Bank of Nigeria (CBN) freeze the market with a debit of over N600billion in Cash Reserve Requirement (CRR) at the close of the week.

This created scarcity of funds and pushed rates high in the market.

By the CRR policy, banks have a mandate to keep 27.5 per cent of deposits with the CBN.

Fitch Ratings predicted a 20 per cent hit in the banks’ revenue this year due to the CRR policy and foreign exchange shortage.

It said Nigeria’s banks would face rising borrowing costs as the CBN’s  measures to support naira squeeze lenders, who are already hit by COVID-19 pandemic and oil price shocks

Dealers from Zedcrest Capital confirmed that despite the market opening at over N1trillion positive, the apex hit the market with a CRR debit of over N400billion and then after another N200billion.

 This is aside from the much expected bi-weekly retail intervention funding provision made by most banks in the market.

According to the dealers, as a result of these debits, Open Buy Back (OBB) and Overnight (OVN) jumped significantly above 800per cent to close the day at 8.00per cent and 9.30per cent, respectively.

“We expect the interbank market to normalize in the early part of next week, albeit with rates slightly above 1per cent, as there are no significant funding need to push rates further north,” the dealers said.

Recently, the CBN debited the accounts of 23 deposit money banks with N349.72 billion over Cash Reserve Ratio (CRR) breaches.

The debits are the latest in the regulator’s CRR debits meant to get the banks to lend to real sector operators.

The debits are also part of the apex bank’s move to mop up liquidity as inflation uptick persists.

The CRR is an important monetary policy tool used by the CBN to regulate the economy.

Some experts say it is pertinent because, among others, it helps the apex financial institution to redirect focus to other strategic sectors of the economy such as the real sector.

The CRR is also an important tool in managing the country’s foreign exchange liquidity since the whittling down of CBN’s OMO borrowing.

Bankers said lenders were relying on existing customers to weather the storm as new lending looked risky with the economy expected to tip back into recession.

“General sentiment in the market is that CRR debits are carried out quite close to Foreign exchange auctions to prevent the banks from presenting large ticket forex demands at auctions,”  analysts said.

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