PFAS Given 15 Months to Raise ₦20bn Minimum Capital

Banks with significant exposure to government deposits may come under increased pressure following the Central Bank of Nigeria’s (CBN) decision to impose a 75 per cent Cash Reserve Ratio (CRR) on non-Treasury Single Account (TSA) public sector funds.

The policy was announced by CBN Governor Olayemi Cardoso in the communiqué issued after the two-day Monetary Policy Committee (MPC) meeting. He explained that the measure is aimed at strengthening liquidity management, as the MPC observed a build-up of excess liquidity in the banking system despite slowing inflation. This liquidity, the committee noted, largely stems from fiscal releases tied to improved government revenues.

TSA balances, which represent federal revenues warehoused directly with the CBN, remain unaffected. However, non-TSA deposits — comprising state and local government funds typically kept with deposit money banks — have been identified as a major source of liquidity surges, particularly after Federation Account Allocation Committee (FAAC) disbursements.

Afrinvest analysts observed that such inflows have historically provided banks with a pool of low-cost deposits but often coincided with periods of naira depreciation. “By sterilising 75 per cent of these balances, banks would need to intensify efforts to mobilise private sector deposits,” the firm stated, warning that lenders with large government exposures may face short-term margin pressures.

Tilewa Adebajo, CEO of CFG Advisory, welcomed the policy, describing it as necessary to curb excess liquidity and rein in inflationary pressures. He argued that unchecked fiscal spending has been a key driver of core inflation, adding that the collaboration between the Ministry of Finance and the CBN would help sustain the downward trend. “If Nigeria can bring inflation to around 12 per cent, the economy could grow at eight per cent or more on a sustainable basis,” he said.

Adebajo also noted that banks would gain some relief from the adjustment of the general CRR for commercial lenders, which has been reduced to 45 per cent from 50 per cent.

In its post-MPC analysis, CardinalStone stated that non-TSA balances accounted for about 1.6 per cent of broad money supply at the end of 2024 and were equivalent to 1.3 times December FAAC allocations to states and local governments. The firm said this adjustment would help moderate foreign exchange pressures, as outflows from these deposits are expected to be gradual and expenditure-linked.

Analysts concluded that the MPC’s decisions reflect a careful balancing act — easing slightly to support growth while tightening liquidity conditions around sensitive channels to preserve price stability and sustain confidence in the foreign exchange market.