LCCI to CBN: Cash Reserve Ratio of 22.5% too High
By Adedapo Adesanya
The Lagos Chamber of Commerce and Industry (LCCI) has urged the Central Bank of Nigeria (CBN) to reduce the Cash Reserve Ratio (CRR) so as to increase credit to the private sector.
Business Post reports that a cash reserve ratio is a part of the total deposits of customers commercial banks keep with the central bank as reserves. In Nigeria, the CBN requests banks to have a minimum a CCR of 22.5 percent.
But President of the LCCI, Mr. Babatunde Ruwase, while speaking with The Nation, said the 22.5 percent CRR requested by the CBN was too high.
According to him, the current CRR regime was not effective because banks were grappling with bottlenecks in accessing the facility. He suggested that the CRR framework should be made flexible and faster by the nation’s apex banking sector regulatory agency.
Mr Ruwase added that the Federal Government needed to reduce the current rate at which it mops up money from the banks because it makes the cost of funds higher for the banks.
He, however, gave kudos to the CBN for its various efforts on job creation, improving credit for MSMEs, intervention in the agricultural sector, building robust payment system, exchange rate stability and maintaining strong external reserve, among others.
LCCI, he said, was in support of the move by the CBN in developing a Trade Receivable Portal to enable Micro, Small & Medium Enterprises (MSMEs) trade their invoices with financial institutions to improve their cash flow.
Ruwase, however, expressed doubt on the feasibility of the concept, saying, “We are, however, sceptical about the workability of this laudable idea judging by the current disposition of commercial banks to lending to MSMEs, except this trend is reversed,”
He further commended the desire of the CBN to boost consumer spending through a lending framework that will involve large departmental stores, equipment leasing companies, automobile companies in partnership with financial institutions and credit bureaus.
Ruwase urged the CBN to put all the necessary measures in place before commencement to ensure that the intended goal is achieved nothing that consumer spending is critical towards ensuring economic growth.
While acknowledging that all efforts put in place by the CBN in the last five years yielded the intended results, the economist commended the CBN’s five-year master plan.
“This five-year plan of the CBN is indeed laudable and commendable. However, we recognise that the role of the CBN is in using monetary policies to stimulate growth of the economy while some of the planned targets are fiscal in nature.
“It will, therefore, requires that a framework for collaboration with the major economic ministries and other stakeholders be put in place to be able to fully actualise what the CBN sets out to accomplish in the next five years,” Ruwase said.