CBN Targets CRR Pool At Growth Stimulating, Job Creating Companies

As promised in the communique issued at the end of the 119th meeting of its Monetary Policy Committee (MPC) on July 24, the Central Bank of Nigeria (CBN), on Thursday, unveiled plans to enable companies with capacity to create employment and stimulate economic growth, access a pool of once sterile Cash Reserve Requirement (CRR) warehoused by deposit money banks.
Although it is not immediately known how much is available under the programme, it may run into trillions of Naira.
Funds to be disbursed under the scheme tagged: Real Sector Support Facility (RSSDF), are targeted primarily at A-rated companies operating in the real sector (manufacturing, agriculture and any other permitted by the CBN).
Banks are allowed under the scheme to facilitated a maximum of N10bn per project at an all-inclusive interest rate/charge of 9% per annum. The CBN encouraged customers to report any bank that charges rates above that prescribe to the CBN’s Director of Banking Supervision, even as repayment shall be amortised and remitted on a quarterly basis to the CBN.
Traditionally, banks across the globe are required to keep a percentage of deposits they mobilise from customers (22.5% in the case of Nigeria), known as Cash Reserve Requirement (CRR) with the CBN. It is the portion of every Naira of customer deposits kept with the CBN and not available for investment and/or lending or credit purpose. The CRR attracts zero interest, and is therefore a tool used to control liquidity in a nation’s banking system and ensures that banks do not run out of cash to meet the maturing obligations of their depositors.
The CBN’s “Guidelines for Accessing Real Sector Support Facility (RSSDF) through Cash Reserves Requirement (CRR)/Corporate Bonds (CBs),” seeks to increase the flow of credit to the real sector of the economy, in order to consolidate and sustain the nation’s economic recovery, just as the participating banks would earn an income.
The sectors have been identified as manufacturing and agriculture, as well as others considered by the CBN as meeting the set criteria. They include ‘A’ rated companies that will be encouraged to issue long-term corporate bonds and projects targets at both backward integration and those capable of enhancing Nigeria’s Import Substitution Strategy.
The guideline noted that under its Differentiated Cash Reserves Requirement (DCRR) regime, commercial banks are allowed to request the CBN to release funds from their CRR to finance new (greenfield), as well as expansion (brownfield) projects in the real sector. Such banks must however provide verifiable evidence that such funds shall be directed at the CBN approved projects.
Emphasis will be on greenfield projects under the DCRR and shall be at minimum tenor of seven years, with two-year moratorium, with the Participating Financial Institution (PFI) bearing the credit risk
Banks may also invest part of their CRR in long-term corporate bonds of Tripple A-rated companies which the meet job creation and economic stimulating criteria.
The CB must also be with a minimum tenor of seven years, while the moratorium is as specified in the offer document.
Specifically, priority will be given to “projects with high local content, import substitution, foreign exchange earnings and potential for job creation, just as existing loans shall not qualify for funding under the programme.
While trading activities are prohibited from benefiting, the CBN warned of severe penalties for banks that seek to present any project that do not meet its eligibility criteria.

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