The Central Bank of Nigeria (CBN), yesterday, made a U-turn on ‘penalties’ on deposits in excess of N500,000 (for individuals) and N3 million (in the case of corporate entities) in what appears like a desperate effort to oil the seemingly cash-starved banking system.

The decision came on the heels of rising panic over low cash circulation in the banking system. The Guardian had reported that commercial banks have started rationing cash across the country even agent bank operators charge as much as 10 per cent for withdrawal in some parts of the country.

As of yesterday, most automated teller machines (ATMs) in major cities across the country were still not serviced even as some banks placed artificial restrictions on across-the-counter withdrawals.

The challenges are coming less than a year after the naira redesign grounded the economy and threw millions of citizens into hardship. Some weeks ago, there was uncertainty over the status of the old naira banknotes ahead of the December 31 deadline secured by a Supreme Court running on the validity of the notes. However, the CBN had secured a court injunction to extend the lifespan of the currencies indefinitely and subsequently issued a directive to banks to continue to accept and issue the same alongside the new banknotes.

To the chagrin of concerned Nigerians, mild cash scarcity, which neither bankers nor their regulator has sufficiently explained, hit the system. Banks and their agents have engaged in some sort of cash rationing while the latter has increased charges on withdrawal by as much as 100 per cent – a decision Nigerians fear could ruin the forthcoming yuletide.

The removal of processing fees (two per cent on above N500,000 for individuals) and three per cent on deposits over N3 million by corporate bodies was the first (veined) official response of the bank to the cash rationing.

This change reverses an earlier notice, which took effect in 2019. This suspension, the apex bank said, will remain in effect until the end of April 2024.

Effectively, commercial banks would have to bear the rising cost of cash handling management, which the processing fees were inadvertently meant to cover. Hence, the option could increase operating costs, depending on how the depositors respond to the change.

Whereas the apex bank is drifting on its cashless policy path, albeit temporarily, a more sustainable innovation – bank neutral cash hubs (BNCH) – which was meant to wean banks of the risk of the cost of cash handling has been in abeyance close to two years after it was muted.

The CBN said the hubs, which would be located in high cash catchment areas, would enable customers to make deposits and receive values above benchmarks considered too large at fees.

“The key objective of setting up BNCH is to reduce the risks and cost borne by banks, merchants and huge cash handlers in the course of cash management activities; deepen financial inclusion; and leverage on shared services to enhance cash management efficiency…

“A BNCH may carry out the following: Receipt of naira-denominated deposits on behalf of financial institutions from individuals and businesses with high volumes of cash; disbursement of Naira denominated withdrawals on behalf of financial institutions to individuals and businesses with high volumes of cash and any other activities that may be permitted by the CBN,” the guideline noted.

A functional BNCH regime would fully commercialise large cash transactions, wean banks from the risk of large cash management and create dedicated cash-handling operators in the financial system.