The Central Bank of Nigeria (CBN) has taken measures to slash the mandatory cash reserve requirement for banks exclusively catering to companies.
The reduction in the cash reserve ratio, the amount banks must maintain with the central bank, is expected to enhance the availability of credit and alleviate borrowing costs for such banks.
The CBN announced that the cash reserve ratio for merchant banks, which specialize in providing financial services to businesses and individuals, will be reduced from 32.5% to 10%. This will enhance banks’ capacity to increase funding for long-term financing, infrastructure projects, and other ventures within the real sector.
President Bola Tinubu’s administration has prioritized the expansion of lending for infrastructure projects and the stimulation of growth in Nigeria, the largest economy in Africa.
Since assuming office in May, Tinubu’s government has implemented various measures to achieve these objectives, including the elimination of a fuel subsidy that had a staggering cost of $10 billion last year, the relaxation of foreign-exchange controls, and the initiation of a comprehensive overhaul of the agricultural industry to reduce food costs and generate employment opportunities.
The revised cash reserve requirement for merchant banks will come into effect on August 1. This move is expected to inject additional liquidity into the system, enabling companies to access long-term funding more easily and exert downward pressure on borrowing costs.
Presently, borrowing costs can reach as high as 28.3%, as per data provided by the central bank.
Nigeria currently has six licensed merchant banks operating in the country, including RMB Nigeria Ltd., FBNQuest Merchant Bank Ltd., and Coronation Merchant Bank Ltd.
These banks play a vital role in supporting the financial needs of businesses and individuals and will now be better positioned to contribute to the country’s infrastructure development and economic growth.