Naira Redesign Policy Causes Banks’ Deposits with CBN to Plummet by 95.82% – The cash crunch in Nigeria resulting from the naira redesign policy has caused the Standing Deposit Facility (SDF), which is commercial banks’ deposits with the Central Bank of Nigeria (CBN), to drop by 95.82% in less than two months. Data from the CBN’s website reveals that banks’ deposits with the apex bank decreased to N4.69 billion as of April 4, 2023, from N112.24 billion on February 10, 2023.
The CBN describes standing facilities (deposit and lending) as instruments of liquidity management. They serve as avenues to invest surplus funds overnight and to square up whenever the system is short at the end of each business day.
According to analysts at FSDH Research, “Poorly executed naira redesign policy led to a cash crunch across Nigeria. Many individuals have lost trust in several banks due to sub-optimal performance of payment platforms and rationing of cash withdrawal.”
Muda Yusuf, the Chief Executive Officer of the Centre for the Promotion of Private Enterprise (CPPE), said the cash crisis experienced by bank customers had a profound impact on their confidence regarding cash deposits. He added that it would take some time for this confidence to be restored.
Taiwo Oyedele, the Head of Tax and Corporate Advisory Services at PwC Nigeria, said, “If a customer had to go through s
o much trouble to access their hard earned deposit with banks unsuccessfully in many cases even for the most basic of needs like food and medicines, it should be expected that they will not be in a hurry to take their cash to the banks anytime soon.”
This experience not only reverses some of the gains made regarding financial inclusion, but it may negatively affect credit creation in the economy, especially over the short to medium term. Addressing the problem will require the CBN to consistently inject sufficient cash into the system to restore confidence and get people to have faith in banking again.