LAGOS—APPARENTLY worried by the wave of liquidity crisis in the banking industry, the Central Bank of Nigeria (CBN) yesterday suspended the withdrawal of public sector funds even as cost of fund rose to 25 per cent at the inter-bank money market.
Deputy Director, Corporate Affairs, CBN, Mr. Tony Ede, confirmed this development to Vanguard, saying the decision to suspend the withdrawal of public sector funds was informed by the severe liquidity squeeze in the system. He said that though as at last week N12 billion had been transferred to the CBN by some of the parastatals which were directed to pullout their funds from the banks, no bank was, however debited for public sector fund yesterday.
The CBN had directed the NNPC and three parastatals to return a total sum of N74.5 billion to the CBN. Others were the Nigerian Petroleum Technology Development Fund (NPTDF), Nigerian Telecommunications Limited (NITEL) and the Bureau for Public Enterprise (BPE). But two weeks ago, only the NPTDF had returned N8 billion while NITEL was exempted as its funds were tied to loan facility.
The directive by the apex bank to parastatals to withdraw their deposits from banks did not, however, go down well with the NNPC as it said debiting its accounts in various banks totalling N46 billion would hurt its operations and might create chaos in the petroleum products distribution system. The CBN, however, insisted that the corporation must comply with the directive else it would debit banks holding NNPC fund in their vaults. Consequently, it wrote to the affected banks that it would effect the withdrawal by yesterday.
The banking system had been thrown into severe liquidity crisis after the CBN began the withdrawal of public sector funds. While the CBN said it had only withdrawn N8 billion of the total N74.5 billion earmarked for the exercise, banks said all the N74.5 billion public sector funds had been withdrawn, thus precipitating crisis in the sector.
Public sector funds account for over 80 per cent of the total deposit base of most of the small and medium sized banks. The CBN said it was withdrawing them to reduce liquidity position of the economy to check rising inflation and interest rates.
Meanwhile, the liquidity crisis in the inter-bank money market worsened yesterday with interest rate on OBB (Open Buy Back) lending rising to 25 per cent from 20 per cent on Friday. According to a bank treasurer, the situation is getting tighter without hope.
