Cash crunch hits banks as CBN mops up Naira

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In order to reduce demand for foreign exchange, especially the dollar, the Central Bank of Nigeria has engaged in continuous and aggressive mop up of cash from the economy in the past six months.

The development is said to be responsible for the cash crunch that has hit the economy with a heavy toll on consumers (households), companies and commercial banks, especially mid-size lenders in the country.

Specifically, through its twice-a-month primary market auction of Treasury Bills and now almost daily Open Market Operations (secondary market auction), the CBN has mopped up trillions of naira in the past six months, according to top bankers who spoke on condition of anonymity.

The development has made the lending rate to soar, especially among the Tier-1 banks, which are able to do little lending at the moment.

While mid-sized banks are struggling to maintain their liquidity positions due to the shortage of naira, the situation is making it increasingly difficult for companies to access credit to expand their operations.

“The loan book of banks is growing leaner and leaner because of the tight liquidity situation the CBN’s actions have put the banks,” a top executive of a commercial bank, who spoke on condition of anonymity, said.

Just on Friday, the CBN disclosed that it sold about N204.9bn in treasury bills following its auction held on Wednesday July 19, 2017.

It sold one-year treasury bills at 23 per cent and 182 days at 19 per cent true yield, respectively.

The CBN reportedly raised N1.129tn through the auction of the TBs in the second quarter of 2017.

In its TB issuance programme, running from March 16 to June, the apex bank also said N1.086tn worth of bills would mature during the same period.

The CBN is planning to issue the TBs worth N1.24tn in the third quarter of this year.

Source: The Punch

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