CBN debits banks N2.476tr in 3 months

Omodele Adigun

Between last April and July, the Central Bank of Nigeria(CBN)debited N2.476trillion from the commercial banks as Cash Reserve Requirement (CRR) and as part of measures to strengthen the Naira .

This development has prompted some shareholders’ groups to warn the apex bank  not to push the banks off the cliff.

Last month, July, CBN  debited N216 billion from the banks with excess cash holdings as part of measures to strengthen the local currency. In June, it was  N460 billion from the accounts of  the lenders that failed to meet the CRR targets for the previous month, May . This occurred barely a month after many banks were collectively debited N1.4 trillion for the same reason in April.

Banking sources had told a foreign news platform last month that the liquidity withdrawal came before the foreign currency auction.

“The central bank is trying to manage the foreign exchange (forex) rate, using the CRR”, one banker said, adding that the debits had become frequent and over the 27.5 per cent limit.He said offshore lenders were the most affected by the levies since they don’t operate retail business and are debited from their corporate deposits or borrowings.

The CRR is the amount that the CBN debits from banks’ accounts in compliance with its monetary policy objective of mandatorily keeping cash on behalf of the banks. The amount is not available for banks to use. By the CRR policy, banks have a mandate to keep 27.5 per cent of all deposits with the CBN. It was 22.5 per cent last year, but it was jacked up to 27.5 per cent at the JanuaryMonetary Policy Committee (MPC) meeting.

Due to this development, some banks have already forecast a decline in their profits this year. For instance, Fidelity Bank warned In April that 2020 profits would drop by 15 per cent.

Sterling Bank, early this month, stated that the amount of its customer deposits held by the CBN was about N215.5 billion, which “represents mandatory reserve deposits and are not available for use in the bank’s day-to-day operations”.

Fitch Ratings also foreseen a 20 per cent hit in Nigerian banks’ revenue this year due to  the CRR policy and forex scarcity.

It said that Nigeria’s banks would face rising borrowing costs as the CBN’s  measures to support Naira  would squeeze banks already hit by COVID-19 pandemic and oil price shocks.

The rating agency had predicted that impaired loan ratios would rise sharply in 2020 with the Nigerian banks most exposed to stress in the oil sector compared with their peers in emerging markets elsewhere.

The President of  Progressive Shareholders Association of Nigeria (PSAN), Mr Boniface Okezie, however, called on the apex bank not to push the banks into suicide. Okezie was among the shareholders who aired their views while speaking  to NextMoney magazine during its virtual editorial board meeting in Lagos.

According to him, it was counter-productive to enforce such policy when the banks were battling with dwindling deposits, possible rise in non-performing loans, dwindling profitability and low returns on investment.

His words: “This is not the time to enforce such policy; the CBN should allow the banks to breathe because businesses are in great trouble and the banks are battling for survival. Customers are not depositing because they are virtually not doing business; everything is at a standstill; small and medium enterprises are dying. Where will the banks get the fund to invest and support the real sector? The CBN should not push the banks into suicide because the pressure is already severe on them”.

Speaking in the same vein, the National coordinator of Pragmatic Shareholders Association of Nigeria, Bisi Bakare, said the apex bank has almost gone for the banks’ juguler in its decision to implement the CRR debits at this time, adding that it would hinder the banks from extending credit to the SMEs and impede efforts to generate optimum returns for their stakeholders.

“The earning ability of banks will also be adversely impaired in bringing value to their shareholders,” Bakare added. Also the National President, Trusted Shareholders Association of Nigeria, Mukhtar Mukhtar, in his response to questions by the magazine, said the CRR debit was a way of “robbing the banks, their customers and shareholders” beyond SME financing.