The Central Bank of Nigeria (CBN) reversed course yesterday and stopped imposing “penalties” on deposits over N500,000 for individuals and N3 million for corporate entities. This move seems to be a desperate attempt to inject cash into the banking sector, which is in dire need of it.
The decision was made in response to a growing anxiety about the banking system’s inadequate cash flow. According to a story by The Guardian, agent bank operators in certain regions of the country are charging as much as 10% for withdrawals, while commercial banks have begun limiting cash availability throughout.
Less than a year has passed since the naira devaluation crippled the economy and sent millions of residents into misery. Now, there are new difficulties. Before the December 31 deadline set by the Supreme Court to rule on the notes’ validity, there was some doubt several weeks ago regarding the status of the old naira banknotes.
However the CBN had obtained a court order to prolong the currency life indefinitely, and it then sent out a directive to banks telling them to keep accepting and issuing the old banknotes in addition to the new ones.
Mild cash scarcity impacted the system, much to the dismay of worried Nigerians, for reasons that neither their regulator nor bankers have adequately addressed.
Banks and their representatives have implemented cash rationing in one form or another, and the latter has raised withdrawal fees by up to 100%. Nigerians worry that this move could spoil the upcoming Yuletide.
The first (veined) official response of the bank to the cash rationing was the reduction of processing fees, which were two percent on deposits over N500,000 for individuals and three percent on deposits over N3 million for corporate bodies.
This modification undoes a previous notification that was sent in 2019. The apex bank stated that this suspension would last until the end of April 2024.
The processing fees were unintentionally intended to cover the growing expense of cash handling management, which would ultimately fall on commercial banks. Hence, depending on how depositors react to the change, the choice may result in higher operating costs.
While the central bank is straying from its cashless policy, if only momentarily, bank-neutral cash hubs (BNCH), a more sustainable innovation designed to wean banks off the danger of the expense of carrying cash, have been put on hold for almost two years after its introduction.
The CBN stated that consumers would be able to deposit money and obtain amounts over benchmarks deemed excessively high at costs from the hubs, which would be situated in high cash catchment areas.
“Reducing the risks and expenses that banks, retailers, and large cash handlers incur during cash management operations, expanding financial inclusion, and utilizing shared services to improve cash management effectiveness are the main goals of BNCH’s establishment.”
The guideline stated, “A BNCH may perform the following: Receiving naira-denominated deposits from individuals and businesses with large cash volumes on behalf of financial institutions; Disbursing naira-denominated withdrawals on behalf of financial institutions to individuals and businesses with large cash volumes and any other activities that may be permitted by the CBN.”
A well-functioning BNCH regime would create specialized cash-handling companies in the the financial system, fully commercialize large cash transactions, and wean banks from the risk of managing huge cash.
