CRR debits rise to N5.122tr as CBN hits banks with N321.6bn
It seems there is no end to the monetary authority’s pseudo-capital controls in managing the nation’s forex liquidity challenge as the Central Bank of Nigeria (CBN) at the weekend debited N321.6billion from 17 banks for their failure to meet its Cash Reserve Requirements (CRR) for this month.
The latest liquidity withdrawal, according to analysts, has brought the amount debited so far from the nation’s banks as CRR to N5.122trillion, even as the total banking reserves held by the apex bank for the same reason is estimated to be N2 trillion.
The CRR is the amount that the CBN debits 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, before being raised to 27.5 per cent at the Monetary Policy Committee (MPC) meeting on January 24, 2020.
Between December 2019 and July 2020, an estimated N4.8 trillion had been debited from bank deposits as CRR.
Last month, July, the apex bank debited another N216 billion from the banks with excess cash holdings as part of measures to strengthen the Naira. In June, it was reported that N460 billion was yanked off the banks 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 Reuters last month that the central bank was trying to manage the foreign exchange (forex) rate using the CRR as a tool, adding the debits had become more frequent and over the 27.5 per cent limit. An analyst 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.
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, while Sterling Bank’s early this month, stated that the number of its customer deposits now held by the CBN stood at about N215.5 billion which “represents mandatory reserve deposits and are not available for use in the bank’s day-to-day operations”.
Union Bank of Nigeria reported its total CRR increased from N296 billion as at December 2019 to N484.5 billion as of June 30, 2020.
This suggests the central bank has debited the bank an estimated N188 billion in additional CRR between January and June 2020.
For its part, FBN Holding also reported about N797 billion of its cash remained with the CBN in CRR debits as at June 2020. The development had made Fitch Ratings to raise the concern of a possible 20 per cent hit in Nigerian banks’ revenue this year due to the CRR policy and foreign exchange (forex) scarcity. It said that Nigeria’s banks would face rising borrowing costs as regulatory measures to support naira would squeeze banks already hit by COVID-19 pandemic and oil price shocks. The rating agency also predicted impaired loan ratios will rise sharply in 2020 with Nigerian banks as most exposed to stress in the oil sector compared with their peers in emerging markets elsewhere.
Commenting on this, development, Nkedilim Nwadialor of Tellimer Capital, said recently that those debits will also hamper wider lending, going against CBN measures of lowering banks’ Loan-to-Deposit Ratios, CBN data showed that credit to the private sector in April dropped by nearly two-thirds from end-2019.