Cash crunch hits banks, lending now 44% overnight

CBN Governor

 Mr. Godwin Emefiele

Exactly two weeks after the Central Bank of Nigeria’s Monetary Policy Committee raised the Cash Reserve Ratio on private sector deposits from 15 per cent to 20 per cent, Deposit Money Banks are experiencing difficulties in raising adequate cash to meet their daily obligations and operations, investigation by our correspondent has revealed.

Officials of banks also confirmed on Monday that the development had made the overnight lending rate of the Nigerian Interbank Offer Rate to rise to 44 per cent, down from around 13 per cent a month ago.

The MPC had, during the once-in-two-month meeting on November 25, raised its benchmark interest rates by one percentage point to 13 per cent, and devalued the naira by eight per cent, as it sought to reduce pressure on the falling naira.

The CBN had argued, among other things, that the policy actions were required to reduce the losses to the external reserves from defending the naira against weaker global oil prices.

Banking sources, who spoke to our correspondent under the condition of anonymity on Monday because they were not authorised to speak on the matter, said that the CBN’s decision to mop up 20 per cent of the private sector deposits in the banking system, instead of 15 per cent, had created serious liquidity squeeze in the sector.

The cash problem, it was learnt, started on November 27 when the CBN debited banks’ accounts with a total of N560bn.

This was two days after the MPC’s November 25 decision which raised private sector CRR to 20 per cent.

Dealers said the situation became worse last Thursday when the central bank mopped up another N250bn from the banking system through a private market action of Treasury bills.

A top official of a local bank said, “The banking sector is experiencing serious liquidity problem now. It started about two weeks ago when the central bank mopped up N560bn from the banking sector.

“The situation became worse last Thursday when the central bank took another N250bn from the system through primary market auction of the TBs. The situation will continue until this Thursday when about N160bn TBs will mature.”

It was learnt that the move was meant to reduce pressure on the naira, as banks would lack the liquidity to speculate on the naira.

The overnight lending rate had spiked to 30 per cent on Friday after the central bank drained around N250bn from the banking system on Thursday.

The overnight lending rate, which closed at 44 per cent on Monday, was around 10.5 per cent two months ago.

Meanwhile, the naira dropped at the interbank market on Monday and closed at N183.34, down from the N181 on Friday.

Analysts said the local currency might drop further at the interbank market due to continued pressure.

The CBN sold dollars to authorised dealers at N168 at its Retail Dutch Auction System window on Monday. The total amount sold was expected to be disclosed later in the day.

At the parallel market on Monday, the dollar was sold for N187, dealers said.