As part of efforts to drive long term financing, the Central Bank of Nigeria (CBN) has announced a reduction in the Cash Reserve Requirement (CRR) of merchant banks to 10 per cent from the current 32.5 per cent. The apex bank in a circular dated July 14, 2023, and signed by CBN Director, Banking Supervision Department, Haruna Mustafa, also stated that the change will take effect from August 1, 2023.
Recall that CRR is a specified percentage or minimum fraction of the total deposits of customers. Commercial banks have to hold reserves either in deposits or cash with the central bank. Notably, an increase or reduction in the CRR could have several effects on banks and the overall economy. An increase in CRR will reduce the banks’ capacity to lend to borrowers whereas a reduction in CRR will make more funds available to the banks to lend to customers. The CBN explained that the reduction in the CRR was expected to boost the banks’ ability to avail of increased infrastructure, real estate, and other long-term financing needed to support the development of the Nigerian economy.
