Central Bank of Nigeria has slashed the mandatory cash reserve requirement for merchant banks by 70% to increase their liquidity and ability to extend loans to companies.

The cash reserve ratio for merchant banks has been reduced to 10% from 32.5% “to boost the banks’ ability to avail increased infrastructure, real sector and other long-term financing,” the Abuja-based bank said in circular to the banks.

The “measure is in recognition of the nuanced business model of the merchant banks, in particular their wholesale funding structure,” it said.

The cash reserve ratio is the share of a bank’s customer funds that must be deposited with the CBN. The regulator deploys the ratio to regulate money supply and credit in the economy. It increased the ratio for merchant and commercial lenders in September to 32.5% from 27.5% to curb credit and inflationary pressure on the economy.

The new merchant banks’ cash reserve requirement takes effect Aug. 1, the CBN said. There are six institutions licensed to operate as merchant banks in the country, according to the regulator’s website.

Bloomberg