Nigeria’s eight banks suffered a N2.32 trillion debit in Cash Reserve Requirement (CRR) sequesters by Central Bank of Nigeria (CBN) in nine months of 2020
NewsDirect reveals that the apex bank had since 2019 debited banks a chunk of their deposits as part of a mutually inclusive CRR and Loan to Deposit Ratio policy that is targeted at coercing banks to lend more to the private sector.
The Monetary Policy Committee (MPC) of the CBN increased its CRR to 27.5 per cent from 22.5 per cent at held in January and maintained it all through the year.
The CRR is the amount the CBN debits from banks accounts in compliance with its monetary policy objective of mandatorily keeping cash on behalf of banks. The amount is not available for banks to use.
The tier-1 banks operating in the country are the most affected as they are unable to meet the 27.5 per cent CRR policy of the apex bank
Specifically, United Bank for Africa (UBA), the Nigerian bank with the most African presence suffered a CRR debit of N700.45 billion to N1.53 trillion in nine months ended September 30, 2020.
Guaranty Trust bank Plc (GTBank), Nigeria’s largest bank by market capitalization reported a CRR debit of N566.44 billion in nine months of 2020. The bank’s has a total of N1.01 trillion in CRR debits held by the CBN as at September from N443.35 billion reported in 2019 full year results.
Another Tier-1 bank, Access Bank Plc reported a CRR debit of N190.59 billion, the lowest of the leading banks in the nine months under review.
A total of N1.04 trillion in the bank’s customer deposits has now been sequestered by the CBN in nine months of 2020.
However, a Tier-2 bank, Stanbic IBTC Holdings plc reported N341.8 billion CRR debits held by the CBN as at September to N393.95 billion, while Union Bank of Nigeria Plc reported N241.61 billion CRR debit by the apex bank in the period under review.
A reliable source in one of the Tier-2 commercial banks in the country explained to Nigerian NewsDirect that continued debits of CRR by CBN is putting the banking sector under serious threat, stressing that the apex bank has consistently debited banks twice a month.
The source explained further that the apex bank action is squeezing liquidity from the commercial banks, revealing that the apex bank last week debited from commercial banks operating in the country CRR, failure to meet the 27.5 per cent requirement.
The source added that the apex bank is not considering total lockdown of the economy, caused by COVID-19, coupled with dwindling global oil prices that forced commercial banks to pounder on loans restructuring and provisions.
When the policy was introduced, Banks however complained bitterly that the CRR policy especially as it has affected their Net Interest Income.
“By debiting banks for failing to meet CRR targets, the CBN is effectively denying banks of the ability to earn an income in customer deposits,” the source said.
Our correspondent gathered that Union Bank of Nigeria has N537.65 billion restricted funds with the CBN as at September 30, 2020 as against N296.04 billion reported in 2019.
Other Tier-2 banks, Fidelity bank reported N183.5 billion CRR debit with CBN in nine months of 2020 while Sterling bank plc also reported N95.9 billion restricted money with CBN. In addition, Wema bank Plc, reported one of the lowest mandatory restricted deposit with CBN at N151.34 million from N137.39 million in 2019 to N288.73 million reported as at September 2020.
The CBN two weeks ago sanctioned banks a debit of N226 billion in compliance with its CRR policy.
Out of the N226 billion debited for November 2020; top five banks in Nigeria – First bank of Nigeria, UBA, GTBank, Access Bank and Zenith bank, bore the biggest brunt, with a combined debit of N137.5 billion, implying that the top 5 banks accounted for 60.8 per cent of the total debit for this month.
The breakdown of the debit for the top five banks are; GTBank (N59.5 billion), Zenith Bank (N30 billion), FBN (N20 billion), Access (N18 billion), and UBA (N10 billion).
Another source said, the current economy is not conducive for commercial banks to lend to real sector.
In his words, “CBN is still deducting from commercial for failing to meet up with the CRR of 27.5 per cent. The apex bank even debited last week from commercial banks on CRR. CBN is debiting from commercial banks with CRR below 27.5 per cent.
“The policies are creating a division in the banking sector because it is squeezing liquidity in the banking sector.
“There is nothing precise with LDR in lending to real sector but to protect the foreign exchange rate from further devalue.
“The problem is not about cost of funding but infrastructure, power supply, and access to foreign exchange are still some problems facing the real sector.
“Imagine I give out a five per cent loan, and there is no light and road, there is no how do you expect those at the SMEs to pay back?.”
In April, Nigerian NewsDirect had reported that the CBN debited commercial banks N1.4 trillion for failing to meet CRR targets.
The apex bank in June 19, 2020 sanctioned Citibank, Standard chartered bank and 24 other banks a total sum of N216.11billion for faulting its 27.5 per cent CRR.
Our correspondent gathered that lenders that were debited include Citibank, N11 billion while Standard chartered bank was debited with a total of N10 billion.
The heaviest debited bank include Stanbic IBTC with N30 billion, Guaranty Trust Bank coughed out N25 billion, First City Monument Bank (FCMB) was debited with N15 billion.
The debiting took place ahead of the sales of dollars by the CBN on the domestic foreign exchange market, where commercial lenders bids on behalf of their customers.
Six of the banks debited accounted for 63.52 per cent of the total amount withdrawn from the banking system on Friday, with Zenith Bank vault depleted by N46.27 billion, the highest debit by the regulatory bank.
Analysts explained to Nigerian NewsDirect that the debiting from commercial lenders has become frequent in recent time as the CBN is trying to curb speculation against the local currency as the country’s foreign exchange reserves continue to drop.
According to CBN governor, Godwin Emefiele, the decision of the MPC to raise the CRR is informed by recent inflationary pressure in the economy.
Also, the CBN Governor stated that the decision to hold other rates was informed by the conviction of the committee members that there is a need to observe the response of the economy to several policies introduced by the CBN.
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 Central Bank of Nigeria has been highly interventionist,” 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. “They are conflicting.”
By Nigerian NewsDirect
