Nigeria’s central bank slashed the mandatory cash reserve requirement for merchant banks by 70% to increase their liquidity and ability to extend loans to companies.
(Bloomberg) —
Nigeria’s central bank slashed the mandatory cash reserve requirement for merchant banks by 70% to increase their liquidity and ability to extend loans to companies.
The cash reserve ratio for merchant banks has been reduced to 10% from 32.5% “to boost the banks ability to avail increased infrastructure, real sector and other long-term financing,” the Abuja-based bank said in circular to the banks. The “measure is in recognition of the nuanced business model of the merchant banks, in particular their wholesale funding structure,” it said.
The cash reserve ratio is the share of a bank’s customer funds that must be deposited with the central bank. The regulator deploys the ratio to regulate money supply and credit in the economy. It increased the ratio for merchant and commercial lenders in September to 32.5% from 27.5% to curb credit and inflationary pressure on the economy.
However, the new government inaugurated in May and led by Bola Tinubu plans to increase access and affordability of loans as part of measures to revive the economy and spur growth. The government has ended a fuel subsidy that cost $10 billion last year, eased foreign-exchange controls and initiated a turnaround of the agriculture sector to lower food costs and create jobs.
The new merchant banks’ cash reserve requirement takes effect Aug. 1, the central bank said. There are six institutions licensed to operate as merchant banks in the country, according to the regulator’s website.
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