Monday, 29 July 2013

CRR Hike: Banks to Commence Aggressive Deposit Mobilisation

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CBN Building
MPC decision to be implemented from August 7
Obinna Chima
The decision by the Central Bank of Nigeria (CBN) to sterilise public sector funds in Deposit Money Bank (DMBs) has made most financial institutions to start initiating strategies to mobilise deposits from other sources in the economy.
The Monetary Policy Committee (MPC) had raised the Cash Reserve Requirement (CRR) for public sector deposits to 50 per cent from 12 per cent while it left CRR for private sector funds unchanged at 12 per cent.
With this development, 50 per cent of public sector deposits which comprise deposits of all tiers of government, their ministries, departments, agencies and companies that are deposited in banks must be kept at the central bank and not lent out. The CBN intends to use this method to drain the excess money with banks, which had been put at N1.3 trillion. But the committee had left the Monetary Policy Rate (MPR) unchanged at 12 per cent. Also the Standard Deposit Facility and Standard Lending Facility were also held steady, at 10 per cent and 14 per cent respectively.

But THISDAY gathered that since Tuesday when the MPC took the decision, commercial banks had been working out modalities to revive some of their retail and treasury products to make them attractive to customers.
Furthermore, THISDAY also learnt that some of banks might also adopt a strategy that would hinge the monthly salaries and other emoluments on target.
Meanwhile, the CBN yesterday announced that the implementation of the MPC decisions would take effect from the next CRR maintenance period commencing which is August 7, 2013
The central bank said this in a letter to all banks titled: “Review of the CRR for Deposit Money Banks,” a copy of which was posted on its website yesterday.
The CBN also said the remuneration on “excess” above the CRR of eight per cent was discontinued forthwith.
“The implementation of these decisions will take effect from the next CRR maintenance period commencing August 7, 2013. In order to enhance the rendition of returns on Government deposits, banks are henceforth required to separately report the details of federal, state and local government deposits as additional memorandum items in their monthly bank return/daily bank return (MBR 300/DBR 300). This is without prejudice to other returns on deposit,” it added.
However, the Financial Derivatives Company Limited (FDC) in a report yesterday pointed out that: “Since Open Market Operations auctions have become costly, raising the CRR on public sector funds by 38 per cent is expected to tighten liquidity, thereby creating a funding gap. The DMBs’ initial reaction will be to scramble for funds to cover their positions.
There will also be a reduction in the use of OMO auctions as a mop-up strategy, which will be unnecessary in an illiquid market.”
As at the end of May, total loans by DMBs stood at N8.55 trillion, which represented a year-to-date increase of 6.66 per cent, from N8.01 trillion. This had reflected a build-up in excess liquidity in the banking system and the DMB’s appetite for government securities.
Source: ThisDayLive

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