December 8, 2022/CSL Research
The Central Bank of Nigeria (CBN) has ordered Deposit Money Banks (DMOs) and other financial institutions to ensure that weekly over the counter (OTC) cash withdrawals by individuals and corporate entities do not exceed N100,000 and N500,000, respectively. The apex bank made this known on Tuesday in a circular signed by CBN Director of Banking Supervision, Haruna Mustafa.
The apex bank said the regulatory directives take effect nationwide from 9 January 2023. It was further stated that the maximum daily withdrawals from point of sale (PoS) terminal and Automatic Teller Machine (ATM) will be N20,000 respectively. Also, the CBN noted that Only denominations of N200 and below shall be loaded into the ATMs. Recall that this new policy is sequel to the launch of the redesigned N200, N500 and N1,000 notes.
Recall the CBN’s decision to print new notes was, according to the apex bank, in response to a few challenges being faced by the apex bank as regards currency management such as hoarding of banknotes (resulting in over 80% of currency in circulation being outside the commercial banking system); worsening shortage of clean and fit banknotes; and increasing ease and risk of counterfeiting evidenced by several security reports.
In our daily note after the policy announcement (See CSL Nigeria Daily 27 October 2022), we had noted our expectation that CBN will implement tighter rules around withdrawals to retain money within the system. We also noted this may be an opportunity for the CBN to push its e-money agenda. Again, as we highlighted, we expect some positive fall out with respect to the forthcoming elections as vote buying will certainly be more difficult if the CBN succeeds in getting cash into the system and makes it more difficult to get it out.
The CBN continues its aggressive approach to drive a cashless economy, however, we expect this to impact on small scale businesses, as availability of cash to run daily activities will be significantly reduced. We expect this to also impact the cost of doing business, albeit in the short term as a 10% levy has been imposed on huge cash withdrawals.
In rural communities, where the availability of financial services is limited and many are not literate enough to move cash electronically, the policy may hinder their ability to conduct businesses seamlessly. Businesses and individuals will have to embrace the CBN cashless policy in the long run butwe also believe CBN and banks have a lot to do to improve the existing cashless economy infrastructure and provide solutions to the negative experiences people face when using electronic payments options. Failed transactions, ATM retract error and downtime, Pos failed transactions are a few reasons why some people would rather stick to cash transactions.
Furthermore, with the expected surge in the use of online banking options and the levies imposed on huge cash transactions, we expect an increase in revenue for the government and we expect banks to see growth in their e-banking revenues. We believe these actions by the CBN if properly managed and executed will be positive for the economy but its impact in the near term on vulnerable Nigerians and businesses might be a big price to pay.
