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CBN Withdraws N30bn from Banks

Posted by By Ayodele Aminu and Malachy Agbo on 2005/06/25 | Views: 446 |

CBN Withdraws N30bn from Banks


The Central Bank of Nigeria (CBN) yesterday began a phased withdrawal of public sector funds, slamming a total debit of N30 billion on the accounts of banks in custody of the Nigerian National Petroleum Corporation (NNPC).

The Central Bank of Nigeria (CBN) yesterday began a phased withdrawal of public sector funds, slamming a total debit of N30 billion on the accounts of banks in custody of the Nigerian National Petroleum Corporation (NNPC).

Chief Executives of some of the affected banks have however expressed displeasure over the development , saying the apex bank is not being fair to them.
The banking watchdog had last week expressed discomfort over the excessive liquidity in the economy. Specifically, it noted that the stock of public sector funds in the commercial banking system (over N200 billion) and the uninvested proceeds of the banks recapitalization funds have contributed to liquidity surge.

In an attempt to avert the adverse consequences of these developments on the economy, the CBN a fortnight ago, said it was going to adopt some measures, among which is the withdrawal of N60 billion public sector fund within the next two months to address the problem of excess liquidity in the banking system. This had exerted too much pressure on the exchange rate, increased demands for treasury bills and led to a drastic crash in interest rates in the securities market.

The next tranche of the remaining N30 billion THISDAY gathered, is expected to be withdrawn from banks that hold such funds next month.

The chief executive of one of the banks whose account was debited claimed that his bank was instructed by one of the parastatals to use its deposits to purchase treasury bills, which the bank had already pledged with the latter.

“We have some parastatals funds deposited with us. The parastatal directed us two months ago to use the money to buy treasury bills with them, which we did.

But to our surprise, our account was debited today (yesterday) for the same purpose,” he lamented.

While admitting that the CBN informed bankers of its intention to withdraw the public sector funds at the 279th edition of the Bankers Committee meeting last week, the bank chief maintained that the apex bank ought to have given a notice of at least two months to enable banks restructure their investments.

Reacting to the development, the CBN spokesman, Mr. Tony Ede said the fuss being raised about the withdrawal of public sector funds was uncalled for, stressing that banks had earlier been given a notice of two weeks.

“They cannot grudge over it because CBN gave them notice two weeks ago that their accounts with the apex bank will be debited according to the amount of parastatal funds with them and if CBN debited their accounts, it is in order.

“In the 2005 Monetary and Policy guidelines it was categorically stated that depending upon the liquidity in the system, the CBN may from time to time withdraw or inject public sector funds,” he stressed.

On the complaint that some banks had already invested the public sector funds in treasury bills based on the directive of the parastatals, Ede maintained that there was no way a parastatal could have given such a directive because it is professionally wrong for banks to use government’s money to buy treasury bills at the Government Securities Trading.

The government securities trading comprising the Primary Market Auction (PMA) and the Open Market Operations (OMO) are one of the windows through which the CBN controls the amount of liquidity in the system. This, it does by selling bills through which the Federal Government borrows indirectly from banks, thereby mopping their excess funds.

Other measures to be taken by the CBN include revision of reserve requirement (upward by 50 basis points to 10 per cent, debiting of banks’ accounts with CBN in order to meet the stipulated reserve requirement immediately after the monthly Federation Account Allocation Committee (FAC) meeting and revision of definition of liquidity to include 3-year bonds.

The CBN also decided that, until Pension Funds Adminis-trators were appointed, funds realized from the Pension Fund should, henceforth, not be invested in the Nigerian Treasury Bills instead they should be invested in long-term securities or sterilized.

It also stressed the need to maintain the exchange rate band of ± 3 per cent.

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