April 24, 2020 / 4:16 PM / a month ago

UPDATE 2-Nigeria levies $3.9 bln on banks to soak up liquidity, support naira

* Naira has been hit following oil price crash

* Central bank withdraws excess cash from banks

* Money market rates spike up to 35% -bankers (Adds further details, bullet points)

By Chijioke Ohuocha

ABUJA, April 24 (Reuters) - Nigeria’s central bank has collected 1.4 trillion naira ($3.9 billion) from banks with excess cash holdings as part of measures to support the currency, banking sources told Reuters.

The naira has been hitting new lows on the over-the-counter spot and black markets since last month after the central bank adjusted its official rate, implying a 15% devaluation, to absorb the impact of an oil price crash triggered by the coronavirus pandemic.

The naira this week touched 420 per dollar on the black market for the first time since February 2017, 14% weaker than the official market rate. The currency was quoted at 386.33 naira on the spot market on Friday.

On the non-deliverable forward market, one-year dollar/naira forwards crossed 500 naira per dollar this week.

The central bank in January raised the cash reserve ratio (CRR) that banks must hold by 500 basis points to 27.5%, the first rise in four years to curb excess liquidity in the banking system, which it said was contributing to inflation.

Bankers on Friday said the CRR debit was more than 27.5% and that it was not related to a penalty set for lenders that failed to meet a regulatory loan-to-deposit target.

Banking credit totalled 260.17 billion naira at Friday’s open from 817.69 billion naira the previous session, central bank data showed. Banks have been awash with cash after the government on Wednesday released 780.9 billion naira to states under a March budget payment.

Nigeria’s 28 commercial and merchant banks were affected by the higher debit. Zenith Bank had the highest amount parked at the central bank at 355.95 billion naira, followed by First Bank with 208.1 billion and United Bank for Africa with 204.75 billion. Standard Chartered Bank was charged 120.65 billion naira and Stanbic IBTC 143.97 billion.

The central bank did not respond to request for comment.

The bank uses cash reserve levies to mop up liquidity. It often re-injects the liquidity to stabilise markets.

It was not immediately clear the reason for the levy, especially at a time when lenders are dealing with the fallout of the new coronavirus on Africa’s biggest economy.

Nigeria has reported 981 cases of the coronavirus and 31 deaths, the country’s Centre for Disease Control said on Friday.

The central bank has rolled out a 1 trillion naira stimulus to boost the economy and cut rates on soft loans granted to some sectors but has not said how it would fund the interventions.

The government has also requested $3.4 billion in emergency financing from the IMF to combat the impact of the coronavirus.

Money market rates spiked up to 35% on Friday following the debit, from just 2% the previous session.

In October, the central bank levied a charge of more than 400 billion naira on 12 banks for failing to increase loans to meet a regulatory target.

The central bank at the time asked lenders to maintain a minimum loan-to-deposit ratio or face a higher cash reserve levy, part of measures aimed at getting credit flowing. ($1 = 360.00 naira) (Additional reporting by Camillus Eboh and Alexis Akwagyiram in Lagos; Editing by Catherine Evans, Alex Richardson, Kirsten Donovan)

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