Nigeria’s central bank took 1.47 trillion naira ($3.8 billion) from lenders as additional cash reserves for failing to meet regulatory targets, according to people with knowledge of the matter.

The accounts of almost 30 commercial lenders held with the central bank were debited by the regulator for missing thresholds on cash-reserve and loan-to-deposit ratios, the people said, asking not to be identified because the matter is confidential. The lenders are appealing the move, they said.

Central Bank of Nigeria spokesman Isaac Okorafor didn’t answer calls to his mobile phone or reply to a text message seeking comment.

Policy makers are swooping on the reserves as the oil-producing nation faces its biggest economic contraction in almost half a century after the Covid-19 outbreak curbed demand for commodities and shut down industries and trade.

It also comes amid a 10% depreciation in the naira against the dollar this year, inflation at a two-year high and after banks agreed to forgo profit to help the economy, preserve confidence in the country and ensure financial stability.

The central bank requires that banks park 27.5% of their deposits with the regulator as cash reserves. The clampdown comes after the central bank’s campaign last year to force lenders to give out more credit -- by twice increasing the minimum loan-to-deposit ratio. In September, it debited banks’ accounts with 500 billion naira for falling short of the lending targets, refunding most of the reserves the next month.

The move will drain excess liquidity from the market that could’ve been used to buy foreign exchange, helping to support the naira, Michael Famoroti, the chief economist of Stears Data in Lagos, said by phone. It may also pressure bank earnings as the capital could’ve been deployed into other money-making avenues.

“The central bank doesn’t want them to be playing around with exchange rate, so they want liquidity very tight,” he said. An overnight lending rate stuck at below 5% shows there “is a lot of cash in the system and the regulator is concerned about that.”

The central bank’s firepower to defend the naira is diminishing as cratering oil prices dry up dollar supplies and as its foreign-exchange reserves run down.

Read more: IMF to Recommend $3.4 Billion Emergency Funding for Nigeria

The central bank is providing about 3.5 trillion naira in loans that manufacturers and health-care providers can access through commercial banks, which share some of the income. It also allowed banks to restructure loans for industries hit by the virus. (Bloomberg)

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