The Policy Wave In The Nigerian Banking Sector: A Poison Or a Pill?


The current era of policymaking, by the Central Bank of Nigeria (CBN), can largely be characterized as unorthodox. Outlining the recent policy pronouncements by the apex bank, the highlights include; increase in the minimum required Loan-to-Deposit ratio to 65.0%, the exclusion of local non-bank corporates and individuals from the OMO market, the mandated reduction in transaction fees across various services, and the hike in Cash reserve requirement (CRR) from 22.5% to 27.5%. While these policies are tilted towards driving credit to the real sector, the impact has been divergent across different segment of the financial market.

Although no official document has been issued by the CBN, Business day newspaper published an article on Monday, 24t h February revealing some of the key highlights of the Bankers’ committee meeting which held on Friday, 21st Feb-2020. A notable point is what can best be described as the exclusion of banks from the OMO market and a likely penalty in the form of CRR increase to 30% – 40%, if violated. By all indications, the body language of the CBN and the policy pronouncements have strongly reinforced the commitment of the CBN to defend the Naira and promote real sector growth.

Specifically, the new directive clearly allows the CBN to mop up liquidity at zero cost while
retaining FX inflows from FPIs through the OMO market. However, this is at the expense of the banks. Thus, we cannot but consider the possible cobra effect of this directive, as foreign investors might be turned off by the uncertainties in the regulatory environment resulting in a net-capital outflow which may force the CBN to do the inevitable.

United Capital Research