Policy to restrict lending capacity of DMBs, increase commercial interest rate
The value of the money supply may fall by as much as N20 trillion in the coming weeks as the deposit money banks (DMBs) offload proceeds of what the Central Bank of Nigeria (CBN) has categorised as unclaimed dormant accounts.
In a new guideline, the CBN has directed that unclaimed dormant account proceeds of up to 10 years held by the banks should be released by the banks.
The new policy could see the regulators debiting accounts of DMBs in the coming weeks to the tune of the total of such funds sitting in their portfolios, an action that could see the country’s money supply, which is currently valued at N99.24 trillion, losing 20.2 per cent of its value.
Since May 2022 when the current interest rate hike started, money supply, strangely, has climbed up by over 100 per cent. Then, it was N48.9 trillion.
Since savings and current account balances are near cash, technically referred to high power money, which is most relevant to money creation (expanding money supply), the capacity of banks to create money through credit underwriting, will be adversely contained.
Perhaps, this is another restrictive policy taken to augment the credit tightening, a hawkish approach that has seen the monetary policy rate (MPR) rise to 26.25 per cent.
A fall in money supply could ultimately lead to higher cost of lending and lower investment.
Henceforth, according to the CBN, the management of dormant accounts, unclaimed balances and financial assets would now be handled by the apex bank.
The apex bank had previously estimated the total value of the assets at N20 trillion. A guideline was earlier issued on the subject. That stirred some controversy with some stakeholders questioning the rationale.
“The CBN hereby issues the revised guidelines on the management of dormant accounts, unclaimed balances and other financial assets in banks and other financial institutions in Nigeria to banks and other financial institutions for implementation. This is sequel to the conclusion of the review of the Guidelines on the Management of Dormant Accounts and Other Unclaimed Funds by Banks and Other Financial Institutions in Nigeria issued in October 2015.”
In the circular signed by the Acting Director of the Financial Policy and Regulation Department of the CBN, John Onojah, CBN stated that the revised guidelines, which operationalise Section 72 of the Banks and Other Financial Institutions Act (BOFIA) 2020, followed engagements and consultations with relevant stakeholders, whose comments and recommendations were considered in the review process.
“It, amongst others, standardises the management of dormant accounts, unclaimed balances and financial assets, and outlines the procedure for the administration of these balances, funds, and assets by banks and other financial institutions in Nigeria,” it said.
The apex bank noted that the modalities for the transfer of the relevant balances/funds/assets to the CBN together with the revised templates for the rendition of quarterly returns to the Banking Supervision Department or Other Financial Institutions Supervision Department will be communicated subsequently, implying that the portfolios with respective banks would be updated quarterly.
The bank disclosed that the fresh guidelines supersede the guidelines on the management of dormant accounts and other unclaimed funds by banks and other financial institutions in Nigeria, issued in October 2015 and take effect immediately.
Financial institutions in Nigeria hold deposit accounts and other financial liabilities in their books with no customer-induced activity over a period, thus rendering the accounts dormant.
The CBN noted that the continuous maintenance of such accounts results in the accumulation of huge unclaimed balances at the disposal of the financial institutions for which the depositors may not be adequately compensated.
In addition, dormant and unclaimed balances are increasingly susceptible to fraudulent transactions or abuse, it stated.
The CBN, on October 7, 2015, issued Guidelines on the Management of Dormant Accounts and Other Unclaimed Balances by Banks and Other Financial Institutions in Nigeria to curb abuses in the operation of dormant and inactive accounts and set operational standards.
“To strengthen the oversight functions of the CBN on the management of dormant and unclaimed balances, the Banks and Other Financial Institutions Act, 2020 (BOFIA 2020) made explicit provisions on unclaimed funds or abandoned properties in FIs under the regulatory purview of the CBN,” it noted.
The bank said the provisions of the new guidelines shall apply to all financial institutions.
The part of the objectives, CBN stated, is to identify dormant accounts/unclaimed balances and financial assets to reunite them with their beneficial owners, hold the funds in trust for the beneficial owners, standardise the management of dormant accounts/unclaimed balances and financial assets and establish a standard procedure for reclaiming warehoused funds.
