Cash crisis deepens in banks


November 23, 2005/Source BusinessDay



The cash crunch that hit Nigerian banks in the first week of November intensified last week as banks scrambled to meet the withdrawal needs of their customers.

The cash crunch was sparked off by the withdrawal from the banking system of about N60 billion belonging to the Nigerian National Petroleum Corporation (NNPC).

The Central Bank of Nigeria (CBN) had ordered the withdrawal following intensifying inflationary pressure in the economy.

Data obtained by BusinessDAY from the Money Market Association of Nigeria (MMAN) show a sharp increase in the inter bank rates. The seven-day inter bank lending shot up from 8.833 percent on November 4, to close last week at 28.000 per cent representing an appreciation of about 216 percent within the period. All other rates have equally gone up in the inter bank markets.

Sources within the banking industry say all banks are equally affected, no matter their size, though second generation banks have been hit the hardest. One of the banks was said to have returned customers’ cheques drawn on it while still battling seriously to access funds from the interbank market without success. Consequently, interbank rates have gone up making it difficult for banks to borrow to solve their short-term liquidity problems.

As a stop-gap measure, some of the banks were said to have called back their funds from subsidiaries. Analysts say the action may have been taken for two reasons. According to them, it is either that the affected banks’ clearing positions have gone down, making it impossible for them to fund deficit clearing positions, or they are afraid their subsidiaries could lend the money and subject the funds to the risk of recovery.

Still, one of the banks was said to have adopted the option of calling up its funds from up north to finance operations in the southern part of the country. Sources say this option is posing a problem to the bank as its branches in the northern states are finding it difficult meeting customers’ demands. Overall, many banks are treading cautiously as most maturing obligations are not being renewed.

The CBN governor had given the banks October 31 deadline to return all NNPC funds domiciled in their accounts. He said the reason was to curb rising inflation and contain the growth in monetary aggregates. In his words: \"All banks that collect revenues on behalf of NNPC are expected to remit all such funds to the CBN within 48 hours of the collection\".

He noted that\" failure to remit such funds will attract a penal interest charge of five percent of Minimum Rediscount Rate\".

He however warned that managing directors of banks who misreported NNPC deposits with it, or falsified any returns to the CBN would be suspended for three months in the first instance.

Related News