The Central Bank of Nigeria has received knocks from analysts and concerned voices over its soon to be introduced 50% Cash Reserve Requirement (CRR) on all public sector funds. The CRR is a system employed to mop up excess liquidity in circulation primarily to control inflation.

CBN Governor Lamido Sanusi

CBN Governor Lamido Sanusi announced this at the end of a meeting of the Monetary Policy Committee (MPC) held in late July. He cited among a number of reasons, the fact that banks were receiving the monies at 0% interest and lending back to the government at 13 to 14 percent. However its suspected that this move is also designed to strangulate a stream of funds that government officials may use to prosecute the 2015 elections. The banks in total have about N1.3 Trillion Naira of public sector money. It didnt help matters that these our banks have been sporting such obscene balance sheets while they efficiently screen eager small and medium scale entrepreneurs by raising the risk management parameters that the average joe definitely cannot meet.

Financial analysts and eggheads alike have poured scorn on the decision on several fronts some of which are the fact that politicians do not patronise the banking system enough for the measures to limit spending public funds for the 2015 elections, that our romance with the "IMF manual" system of finance may demand the trimming of bank staff numbers due to the reduced balance sheet  and hmm... that the Sanusi led MPC meeting had no business tinkering with banking supervision matters in the first place. 

Read the rest at http://www.kizarofaro..co.uk/2013/08/cbn-attracts-heavy-criticism-for.html?m=1

This man has caused more people to lose their jobs in nigeria than any individual I know, and he isn't even done yet causing more retrenchments with his myopic trial and error policies.

Naija na anyhow country abeg!

Honestly it was bound to happen. A scenario where banks are sitting on N1.3 Trillion naira in deposits. Instead of lowering the bar and giving more small entrepreneurs loans. The banks are doing lazy mans banking, investing in Treasury bills instead of stimulating more little businesses.

The main reason is to limit the cash splash in 2015 elections

All over the world, Central banks are in charge of financial intermediaries but in Nigeria, out of tribal hatred and religious sentiments, a central bank governor should not monitor them and allow them defraud the economy.

the average guy in Nigeria can not have a collateral. If the government want to create job and more wealth for Nigerians, the government will have to set up a body that will determine risk of a business, and the same body will monitor loans given to individuals by monitoring the investments made with such loans to avoid asymmetric information and moral hazard.

The banks have to relax their collateral demand but tighten their monitoring measures. Infact, every kobo that leaves the account of the investment should be accounted for immediately the kobo leaves. it's a lot of work but you are trying to screen out the bad guys only while encouraging real entrepreneurs...

Nigeria needs all her SWF back into Nigerian banks that can give loans to Nigerians!! We can even make each company that borrows from the SWF (SAVED IN DOMESTIC BANKS) TO PAY MAYBE 2% of profit to the SWF yearly..

It's easy to run a genuine and people oriented government. it is corrupt government that is hard to run...

One of the effects (amongst others) of this policy can be vividly explained by this letter from GTbank :

UPWARD REVIEW OF INTEREST RATE ON FACILITY

Thank you for banking with us.

We write to inform you of the recent increase of the Cash Reserve Requirement on Public Sector funds from 12% to 50% by the Monetary Policy Committee of the Central Bank of Nigeria. This recent upward review has reduced liquidity in the financial market and has ultimately led to increase in the cost of funding within the financial system.

As a result of this, it is imperative that the bank reviews its interest rates in response to market dynamics.

Please be informed that the interest rate on your loan facility or facilities will be reviewed upwards by 200 basis points (2.00%p.a) with effect from August 13, 2013.

We thank you for your patronage and wish to assure you of our continued support and commitment to a mutually beneficial relationship.

For further enquiries, please contact your Relationship Management Team.

Yours faithfully,

For: Guaranty Trust Bank plc.

This policy will certainly affect the cost of production/doing business and ultimately increase inflation. The policy should be reversed or the public sector fund CRR rate simply reduced to about 20%. Increasing rates arbitrarily in the financial markets is a product of subjective and uncontrolled planning.

Ds policy will help him wen he becomes president