In a determined move to tackle Nigeria’s ongoing cash circulation challenges, the Central Bank of Nigeria (CBN) has announced stringent measures against banks that fail to dispense cash through their automated teller machines (ATMs).
CBN Governor Yemi Cardoso made this declaration at the end of the 297th Monetary Policy Committee (MPC) meeting in Abuja, signaling a crackdown on banks that neglect to ensure sufficient cash availability for withdrawals.
Cardoso highlighted that the central bank had developed a robust monitoring system to ensure that banks comply with the directive. He stressed that banks must ensure their ATMs are fully stocked, warning that non-compliance would attract penalties.
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“We ourselves have devised a monitoring system, a spot-checking system, whereby we will go to the banks and just ensure that these things are done in the way and manner in which they are meant to be done,” Cardoso said during the briefing.
The CBN’s monitoring system will involve surprise inspections and audits of banks’ ATM operations. Any bank found to be underperforming in terms of cash availability will face financial penalties and other regulatory actions. This aggressive stance reflects the CBN’s growing concern about the detrimental impact cash shortages have on the economy.
Cardoso expressed confidence that the sanctions would motivate banks to take necessary steps to ensure cash is readily available.
“There is no excuse for not having sufficient cash in the system,” he emphasized. “At all points in time, there should be sufficient cash in their system that nobody should go there without being able to withdraw.”
A PoS Problem?
While the CBN’s efforts appear focused on compelling banks to meet customer demands, experts are skeptical about the effectiveness of this strategy, pointing out that the lack of funds in ATMs is not just a result of poor cash management by banks. A major cause, they argue, is the growing Point of Sale (PoS) market, which has contributed significantly to cash hoarding in recent years.
Over the past few years, PoS services have evolved from a supplementary financial service to an essential cash withdrawal and payment system for many Nigerians, especially in rural and underserved areas. PoS operators now serve as mini-banks, allowing customers to withdraw cash, make transfers, and even pay bills.
According to data from the Nigeria Inter-Bank Settlement System (NIBSS), PoS transactions grew from N3.2 trillion in 2021 to N6.4 trillion by the end of 2022.
However, this convenience has inadvertently created a parallel market for cash, where operators hoard significant amounts of money to meet customer demands, enabling the cash crunch at bank ATMs.
The issue is so pronounced that many PoS operators have become major players in the cash ecosystem, often withdrawing large sums of money directly from banks, only to withhold it to control supply and increase demand.
With daily withdrawal limits imposed on ATMs, customers increasingly turn to PoS operators to meet their cash needs, but these operators charge premiums for their services. As a result, a significant portion of the cash that could otherwise be available in ATMs is circulating within the PoS network, leading to even fewer funds in bank machines.
According to industry observers, the explosive growth of the PoS market has outpaced regulatory oversight, allowing some operators to circumvent banking norms.
N1.4 Trillion to Boost Cash Flow in Three Months
In a bid to mitigate cash shortages, the CBN plans to inject an additional N1.4 trillion into the economy over the next three months. This move is expected to alleviate the cash flow issues that have plagued customers and disrupted financial transactions across the country.
The fresh infusion of cash is part of the CBN’s broader strategy to stabilize the cash supply chain, ensuring that ATMs are consistently stocked and that bank branches can meet customer demands for withdrawals.
Cardoso noted, “Another N1.4 trillion is likely to be delivered in another three months to aid that whole process of cash within the system and cash velocity.” This substantial cash infusion is intended to ensure that ATMs are consistently stocked and that bank branches can meet customer demands for withdrawals.
The CBN’s intervention comes as a response to widespread frustration among Nigerians, who have faced persistent difficulties accessing cash due to ATM downtimes and limited bank branch operations. Cardoso made it clear that the central bank is working closely with deposit money banks to enforce the proper deployment of cash, ensuring that no customer is turned away without being able to withdraw funds.
The CBN has adopted an aggressive stance on cash availability, coinciding with a notable reduction in the amount of currency outside the banking system. As of July 2024, the currency outside banks decreased to N3.66 trillion, reflecting a 3.32% drop from N3.79 trillion in the previous month. This trend underscores the CBN’s ongoing efforts to tighten liquidity and encourage the flow of funds into the formal banking sector.
But despite the reduction in cash outside banks, the overall currency in circulation saw a slight increase, rising from N4.05 trillion in June to a similar figure in July—an increment of just 0.12%. This minimal growth suggests a possible stabilization in cash usage, likely driven by the increased adoption of digital transactions and regulatory efforts to control the flow of physical cash.
The percentage of cash outside banks, which now accounts for 90.39% of the total currency in circulation—down from 93.59% the previous month—signals a gradual shift towards formal banking. This shift suggests that the CBN’s strategies to move more money into the formal sector are beginning to take effect, although challenges remain in ensuring adequate cash availability for daily transactions.
While the CBN’s decision to sanction banks is a step towards addressing Nigeria’s cash circulation problems, the challenge remains. Experts have warned that without addressing the behavior of PoS operators, who hoard and control large sums of cash, the efforts to improve ATM availability may fall short. This means the injection of N1.4 trillion into the economy may provide temporary relief, but structural reforms and better regulation of PoS operations are crucial for long-term stability.