Barely one month after the Central Bank of Nigeria ordered the Deposit Money Banks to keep 50 per cent of public sector funds with it, the apex bank has granted exemption to some government institutions, including the Asset Management Corporation of Nigeria and Bank of Industry.

Others affected by the exemption are the Bank of Agriculture, Bank of Infrastructure, Federal Mortgage Bank of Nigeria and pension board funds.

This was contained in a circular on the bank’s website posted on Wednesday.

The CBN had in August applied the 50 per cent Cash Reserves Requirement to all government’s deposits with commercial banks.

The CRR is the amount of cash that banks have to keep with the central bank and it is used to drain out excessive money from the system.

The waiver, contained in a circular addressed to the DMBs was titled, ‘Review of Cash Reserve Requirement for Deposit Money Banks.’

The circular, signed by the CBN Director, Banking Supervision, Mrs. Tokunbo Martins, stated, “Deposits from the following government institutions are excluded from the reporting of public sector deposits in line with our circular: Asset Management Corporation of Nigeria; Bank of Industry; Nigerian Export-Import Bank; Federal Mortgage Bank of Nigeria; Bank of Agriculture; Bank of Infrastructure; closed pension funds belonging to government institutions; state pension boards; governments staff associations and cooperative societies.”

The CBN, however, stressed that public sector deposits should involve all other departments, agencies and companies of government at all levels.

The circular further directed banks to regard deposits from certain institutions as public sector.

It listed the institutions as the Nigerian National Petroleum Corporation Joint Venture accounts; sovereign investment funds; and government MDAs/companies’ collection accounts such as the Nigeria Customs Service and the Federal Inland Revenue Service.

Others are the Pilgrim Welfare Board accounts and all accounts belonging to government universities.

The CBN Governor, Mr. Lamido Sanusi, had said the introduction of the 50 per cent CRR to public sector funds became imperative in order to further tighten liquidity owing to the increased spending in preparation for the 2015 elections.

He had expressed concern about the excess liquidity in the balance sheets of the DMBs.

The spending by politicians, according to the CBN governor, may exert pressure on the exchange rate and inflation.

The governor noted that about N1.3tn of public sector deposits was currently with commercial banks, adding that such huge funds posed a risk to the current liquidity condition.

Last month, the CBN withdrew about N1tn from the circulation following the implementation of the 50 per cent CRR on public sector funds.

The central bank boss said the next one year would be a very difficult period for the monetary policy, adding that the country might see a further increase in interest rates instead of a reduction.

For instance, he said the CBN would continue to increase the Cash Reserves Ratio for public sector deposits until such accounts were returned to the central bank.

He said, “The next 12 months will be difficult. We would have to respond at every stage and make sure that no matter what happens, we do not have stability pressure.

“So, this is a first step in addressing one major chunk. We have done it on public sector deposits and, then probably, if the government, for instance, decides that public sector account should come back to central bank, then the CRR will be reviewed on that. But if it is out there, then CRR is 50 per cent.”

He said the increase in CRR for public sector deposits was a form of tightening as it would help the exchange rate during a rise in fiscal spending.

Source: Punch (by Oyetunji Abioye)