Kayode Tokede
For failing to meet 32.5 per cent Cash Reserve Requirement (CRR) threshold, the Central Bank of Nigeria (CBN) debited 10 banks N1.62 trillion in the first six months of 2023, THISDAY investigations has revealed.
The 10 banks are: Zenith Bank Plc, United Bank for Africa (UBA), Guaranty Trust Holding Company Plc (GTCO), and FBN Holdings Plc.
Others were: FCMB Group Plc Fidelity Bank Plc, Stanbic IBTC Holding Plc, Wema Bank Plc, Sterling and Unity bank Plc.
CRR is the minimum amount banks and merchant banks are expected to retain with the CBN from customer deposits and it carries no interest and is not available for use by the banks in their day-to-day operations.
THISDAY analysis of the banks’ result and accounts for period ended June 30, 2023, showed that the 10 banks’ mandatory reserve deposit with Central Bank in 2022 full financial year stood at N9.11 trillion compared with N7.49 trillion reported as of June 30, 2023.
THISDAY investigation revealed that within the first six months of 2023, the apex bank debited the 10 banks an estimated N1.62trillion.
THISDAY gathered that Zenith Bank restricted deposit with CBN added N580.49 billion in six months when it closed June 30, 2023 at N2.25 trillion from N1.67 trillion in 2022 FY.
UBA followed Zenith bank with about N356.37billion debited by the CBN in first six months of 2023 to N1.64 trillion from N1.28 trillion reported in 2022 FY.
As GTCO’s mandatory deposit with CBN reached N1.22 trillion, representing an increase of N208.5 billion from N1.01 trillion in 2022,.
On its part, FBN Holdings closed the period under review with N199.91 billion added to it mandatory reserve deposit with Central Bank.
“Despite the pressure from competition and the need to cover for regulatory CRR debits, the Group maintained average liquidity ratio of 36.6% during the period under review,” GTCO explained in a presentation.
FBN Holdings closed June 30, 2023 with N1.76 trillion mandatory reserve deposit with Central Bank from N1.56 trillion in 2022.
Unity bank was the only Tier-II bank that reported N3.66 billion mandatory reserve deposit with Central Bank to N69.05 billion as of June 30, 2023 from N72.71 billion reported in 2022 full financial year.
Hitherto, analysts had called on the CBN to consider reducing the CRR for banks from 32.5 per cent to 25 per cent in view of the high monetary policy rate (MPR).
The Monetary Policy Committee (MPC) of the CBN last September increased CRR from 27.5 per cent to 32.5 per cent in a move to tame inflationary pressure.
Analysts explained to THISDAY that the debiting from commercial lenders has become frequent in recent time as the CBN trying to curb speculation against the local currency as the country’s foreign exchange reserves continue to drop.
Fitch Ratings, global rating agency had said that banks are facing tough times due to CRR policy limiting their capacity to grant loans to customers.
“The CBN has been highly interventionist,” said Mahin Dissanayake, Senior Director for Europe, Middle East and Africa bank ratings at Fitch, said.
“Where peers like South Africa and Kenya followed the global trend of giving banks more room to lend, Nigeria hasn’t budged. Instead, it stuck with a CRR that compels lenders to park keep a portion of their deposits with the regulator.
“Failure to meet the threshold results in the regulator debiting banks’ accounts with the shortfall. The central bank also dips into the accounts when lenders fail to extend 65 per cent of their deposits as loans, a measure that was introduced to stimulate credit. The rules “are aimed at two different monetary policies,” he said, adding, “They are conflicting.”
Speaking, the Vice President, Highcap Securities Limited, Mr. David Adnori said the apex bank is using CRR to control inflation, stressing that the introduction of CRR is a drastic monetary policy targeted at controlling money supply in the banking system.
According to him: “If CBN fails to maintain its CRR policy, so much money will flow into the market and further deprecates naira. Generally, the policy has not favoured banks because the fund is not yielding any interest and of no benefit to the productive sector.
“These are funds banks lend to the real sector to drive business activities, finance working capital of productive sector and boost GDP but the CBN is holding it down.
“It is not a good development for the nation’s economy in general. However, CBN has its reasons and releasing these funds, it might result in hyperinflation, which can damage the nation’s economy. It is like a double edge situation- if you don’t do it, the economy is damaged and if you do it, the economy also struggles.”
He noted that the only way CBN can cut CRR is when inflation dropped to a single-digit rate.
Analysts at Agusto & Co in a report said the CBN’s policies targeted at lowering interest rates have persisted especially given the dire need to stimulate the economy following adversities created by the pandemic.
According to Agusto & Co, “It is noteworthy that Nigeria has the highest reserve requirement in sub-Saharan Africa. South Africa, Kenya and Ghana all have CRR’s of below 10per cent. We believe the elevated CRR level moderated the Industry’s performance and liquidity position during the year under review.”
