*The 27.5 percent Cash Reserve Requirement threshold is the minimum amount the Nigerian commercial and merchant banks are expected to retain with the Central Bank of Nigeria from customer deposits

Isola Moses | 绿帽献妻

The Central Bank of Nigeria (CBN), in 2021, debited 10 banks a whopping N7.02trillion over failure to meet the 27.5 percent Cash Reserve Requirement (CRR) threshold.

It was gathered the audited financial statements of these banks indicated the CBN had debited them a sum of N6.71trillion, in 2020, for not meeting its monetary requirement.

The CRR is the minimum amount commercial and merchant banks are expected to retain with the CBN from customer deposits.

绿帽献妻 reports the CRR carries no interest, and it is not available for use by the banks in their day-to-day operations.

In early 2020, the country’s Bankers’ Bank Monetary Policy Committee (MPC) increased CRR by five percent from 22.5 percent to 27.5 percent over its intention to address monetary-induced inflation while retaining its 65 percent Loan Deposit Ratio (LDR) policy.

Report further noted the CBN by regulation forces banks to retain up to 27.5 percent of their deposits in CRR requirement, meaning that the deposits are not accessed by the banks for loans and advances.

The policy, which started in 2019, has drawn criticisms from most of the banks and shareholders who have cited a drop in their profit as a major consequence, report stated.

The affected banks include Access Bank Plc, Guaranty Trust Bank (GTBank), United Bank for Africa (UBA) Plc, FCMB Group and Sterling Bank Plc.

Others are Union Bank of Nigeria Plc, Stanbic IBTC Holdings Plc, Fidelity Bank Plc, and Zenith Bank Plc.

Extracts from 2021 audited accounts also revealed that Access Bank, followed by Zenith Bank Plc suffered the highest debits in 2021, among 10 other banks, while Sterling Bank suffered the lowest debit, ThisDay report said.

Access Bank and Zenith Bank are the two top banks in terms of customer deposits.

Access Bank as well reported 12 percent increase in restricted deposits with CBN in 2021 to N1.47trillion from N1.31trillion reported in 2020, while Zenith Bank reported a decline of 6.05 per cent to N1.25trillion CRR deposit with CBN as against N1.33trillion in 2020.

Further still, GTBank, the banking subsidiary of Guaranty Trust Holding Company (GTCO) reported N953 billion CRR debit with CBN, a decline of 5.5 per cent from N1.01trillion reported in 2020.

The Group in its 2021 audited results also explained that 鈥淩estricted Deposits with the Central Bank of Nigeria comprises restricted deposits not available for use in the Group鈥檚 day-to-day operations.

Report said: 鈥淭he GTBank Nigeria had restricted balances of N953,040,540,000 with the CBN as) 31 December 2021 (December 2020: N1,008,748,051,000).

This balance is CBN cash reserve requirement.

The Cash Reserve Ratio represents a mandatory total Naira deposit, which banksshould be held with the Central Bank of Nigeria as a regulatory requirement.鈥�

The Group in its 2021 investors/analysts鈥� presentation noted that CRR closed at N952 3 billion in 2021 from N1 009 trillion in 2020, resulting in effective CRR ratio of 37.6 percent from 44 33 percent in 2020 (with Special Bills, CRR closed 59 7 percent).

However, UBA Plc also suffered a debit of N915.15billion in 2021, a decline of 13 percent from N1.05trillion reported in 2020.

Union Bank of Nigeria and Stanbic IBTC reported 28 percent and 22 percent increase in deposits kept with the apex bank as CRR in 2021 respectively.

The effect of this could be seen in both banks鈥� profits reported in the year under review.

From recording a mandatory deposit of N454.8billion with CBN in 2021 from N356.45billion in 2020, Union Bank of Nigeria reported 20 per cent decline in profit before tax to N20.69 billion in 2021 from N25.97 billion, as Stanbic IBTC reported 30.3per cent drop in profit before tax to N66 billion in 2021 from N94.72 billion when its CRR closed 2021 at N423.18billion in 2021 from N348.17billion reported in 2020.

Other banks are Fidelity Bank with N686.1billion CRR debit from CBN in 2021 as against N540.13billion in 2021; Wema Bank grew its CRR debit to N313.8billion in 2021 from N246.97billion in 2020; FCMB Group closed 2021 with N309.63billion CRR debit with CBN from N289.14billion in 2020 and Sterling Bank reported N243.87billion mandatory reserve deposits with CBN from N228.79billion in 2020.

Analysts at GTCO in its report titled, 鈥淣igeria Macro-economic Outlook for 2022鈥�, explained that the reason for the tight system liquidity is the CBN鈥檚 discretionary CRR debits which posed a huge challenge to credit growth for most banks.

According to them, 鈥渁 rough estimate of the industry鈥檚 effective CRR position suggests that about 50 percent of total Naira deposits are sterilised with the CBN as CRR and Special Bills.

鈥淕oing into 2022, the general build-up to the 2023 elections will very likely result in a system awash with liquidity.”

They as well stated: “We believe that the apex bank will tighten the system from the second half of the year just as political campaigns start, to mop-up excess liquidity from the system.

鈥淎lthough it is unlikely that the CBN will slow down on its discretional CRR debits, we expect more banks to approach the apex bank for the release of a portion of their 鈥榚xcess鈥� CRR to assist them in funding their transactions, payment of regulatory levies/fees, etc.鈥�

Mr. David Adnori, Vice-President, Highcap Securities Limited, 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.

鈥淚f 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.”

Adnori also said: “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.

鈥淚t is not a good development for the nation鈥檚 economy in general.

“However, CBN has its reasons and releasing these funds, it might result in hyperinflation, which can damage the nation鈥檚 economy.”

He further noted: “It is like a double-edged situation – if you don鈥檛 do it, the economy is damaged; and if you do it, the economy also struggles.鈥�

According to him, the only way CBN can cut CRR is when inflation dropped to a single-digit rate.

Mr. Godwin Emefiele, Governor of CBN, at the end of 2020 MPC noted, 鈥渢he committee is confident that increasing the CRR at this time is fortuitous as it will help address monetary-induced inflation whilst retaining the benefits from the Bank鈥檚 LDR policy, which has been successful in significantly increasing credit to the private sector as well as pushing market interest rates downwards.鈥�

The CBN Governor also stated: 鈥淭he Committee further encouraged the Management of the banks to be more vigorous in its drive to improve access to credit through its pursuit of the Loan-to-deposit ratio policy as doing this would help, not only in creating job opportunities but also help in boosting output growth and in moderating prices.鈥�

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