Shareholder group under the aegis of Independence Shareholders Association of Nigeria ( ISAN) has expressed displeasure on the hike in the banking sector’s mandatory Cash Reserve Ratio (CRR) and likely erosion of bank’s revenue in the nearest future.
Specifically, with over N12 trillion restricted deposit with the Central Bank of Nigeria ( CBN), the shareholders urged the apex bank to reduce the CRR drastically or pay interest on the restricted deposits to the banks.
At a press conference in Lagos at the weekend, the Founder of Independent Shareholders Association of Nigeria, Sir Sunny Nwosu said the decision by the apex bank to review of most bank charges and fees downward, coupled with the hike in the CRR, amid expectations of increasing regulatory headwinds, is currently causing a setback in the sector.
CRR is a monetary policy tool used by the CBN to control money supply in the economy.
The CRR empowers the central bank to sequester up 27.5 per cent of customer deposits held by commercial banks, effectively restricting the banks from accessing the money.
The apex bank 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 driving lending more to the private sector.
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.
But the CBN Governor, Godwin Emefiele, admitted the move was part of efforts to curb excess liquidity on the banking system, already adjudged as a contributor to the resurging inflation trend.
According to Nwosu, the tight monetary policies of the CBN have continued to pummel the banking sector with multiplier effect on the equities market and loss of value addition to shareholder.
He said: “After serious evaluation of the CRR and current AMCON scam, ISAN insist that CBN should pay interest to banks on restricted deposits to enhance banks obligation to the real sector. In the alternative the apex bank should reduced the CRR to 15 percent to enable banks declare meaningful dividends that will encourage domestic investments.
“We urge CBN to seriously have a rethink on CRR and among other things to enhance the performance of the financial sector of the economy. The challenging character of the Nigerian economy makes it imperative for CBN to pay interest on restricted deposits.
“Banks restricted deposits with CBN are idle funds. We argue that if these funds are with banks, certainly it will enhance their earnings, loans to the real sector and returns for shareholders, ” he said.
He pointed out that continued debits of CRR by the CBN is putting the banking sector under serious threat, noting that the apex bank is denying banks the ability to earn an income in customer deposits.
A breakdown of some banks debited through the mandatory CRR showed that Zenith Bank Plc’s restricted deposit with CBN rose from N680.26 billion in 2019 to N1.33 trillion in 2021, while FBN Holdings Plc’s restricted deposit hit N1.32 trillion in 2020 from N843.44billion in 2019.
FBN Limited and FBN Quest Merchant Bank Limited had also restricted balances of N1.3 billion and N39.37 billion respectively with CBN as at December 31, 2020.
Access Bank Plc CRR deposit with CBN also grew to N1.31trillion or an increase of 54 per cent from N848.85billon in 2019 while Guaranty Trust Holdings Plc (GTCO) reported N1.03trillion mandatory reserve with CBN in 2020 from N443.65 billion reported in 2019.
United Bank for Africa (UBA) mandatory reserves with CBN also increased to N1.10 trillion in 2020 as against N832.11 billion in 2019.
The President of ISAN, Dr Anthony Omojola said banks interim reports in 2021 showed poor revenues, following higher borrowing costs as CRR hike further complicates banks currency flow already hit by fallout from Covid-19 and the oil price shocks.
He pointed out that the CBN warehousing of about N1.2 trillion from the banking system since it raised the CRR by five per cent to 27.5 per cent coupled with the activities of the Asset Management Company of Nigeria (AMCON) calls for serious concerns by all stakeholders.
