CBN Converts Debited Banks’ Excess CRR to Special Bills

By Dipo Olowookere

The Central Bank of Nigeria (CBN) has introduced what it called CBN special bills aimed to boost liquidity in the financial system.

The bills, according to information gathered by Business Post, were created from the excess cash reserve ratio (CRR) the banking sector regulator deducted from deposit money banks (DMBs).

The CBN made some debits from the CRR of banks. These funds were kept at the central bank but in order to ensure that Nigeria quickly gets out of the recession it fell into the second time in four years in the third quarter of 2020, the apex bank is making the cash available to banks for lending to their customers.

In a circular issued by the bank on Monday, the CBN said it has approved the release of the excess above regulatory minimum CRR of banks through the issuance of the CBN special bills.

“The CBN on November 30, 2020, approved the release of the excess above regulatory minimum CRR of banks.

“This is part of measures to improve liquidity and support economic recovery through the increased extension of credit facilities to the real sector.

“This will be accomplished through the issuance of CBN special bills with a tenor of 90 days, subject to roll over at the instance of the CBN,” the circular signed by the Director of Banking Supervision, Bello Hassan, said.

The CBN later released another circular also signed by Bello Hassan and explained that the new policy was part of its “efforts to deepen the financial markets and avail the monetary authority with an additional liquidity management tool.”

It further explained that the new CBN special bills will have a three-month tenor, zero-coupon with the applicable yield at issuance to be determined by the apex bank and that the instrument will be tradable amongst banks, retail and institutional investors.

It further said the “instrument shall not be accepted for repurchase agreement transactions with the CBN and shall not be discountable at the CBN window, and the instrument will qualify as liquid assets in the computation of liquidity ratio for deposit money banks.”

Concluding, the circular said, “The CBN will continue to ensure optimal regulation of systemic liquidity and promote efficient financial markets in support of economic recovery and sustained growth.”

The CRR is the specified minimum amount of the total deposits of customers commercial banks are required to keep as reserves and in Nigeria, it is 27.5 per cent.

This is not the first time the CBN is making CRR refund to banks.

In July 2020, after making deductions of over N2 trillion from the commercial banks over CRR violations, it made a refund of N300 billion to the system, which crashed the money market rates by 4.58 per cent to 15.65 per cent.