The Central Bank of Nigeria (CBN) debited Deposit Money Banks (DMBs) in the country N226 billion in the week ended November 20, for failing to meet Cash Reserve Ratio (CRR) targets, according to a Nairametrics report seen by Sunday Telegraph yesterday.
The CRR is the minimum amount banks are expected to retain with the CBN from customer deposits. As part of measures to curb inflation and naira instability, the CBN’s Monetary Policy Committee (MPC) had in its bid to soak up liquidity from the banking system, increased the CRR by 500 basis points from 22.5 per cent to 27.5 per cent at its meeting in January this year.
Thus, in the last 10 months, the apex bank has regularly debited lenders that fall short of its CRR targets. For instance, in the week ended October 23, 2020, the CBN debited some lenders a total of N917.5billion for not meeting the CRR target.
Also, H1’ 2020 results released by several banks indicate the amounts that the regulator collected from their accounts as CRR debits. Union Bank of Nigeria, for instance, reported its total CRR increased from N296 billion as at December 2019 to N484.5 billion as at June 30th, 2020.
This suggests that the CBN debited the lender N188 billion in additional CRR between January and June 2020. Similarly, Sterling Bank reported that the CBN collected about N215.5 billion of its customer deposits as of June 2020. FBN Holdings also disclosed in its latest financial statements that about N797billion of its cash was with the CBN in CRR debits as at June 2020.
In fact, analysts estimate that between January and July 2020, the CBN had sequestered about N4.8 trillion from DMBs with excess cash holdings. Financial experts point out that apart from the CRR debits, lenders have also been frequently hit with debits by the apex bank in the last one year for non-compliance with its 65 per cent Loan to Deposit Ratio (LDR) policy.
The CBN had in July last year, directed lenders to maintain a minimum LDR of 60 per cent effective from September 30, 2019. However, at the end of September, the minimum LDR was raised to 65 per cent, with a fresh deadline of December 31, 2019.
It said the move was part of measures to drive credit growth, especially to the real sector of the economy. In the communiqué issued at the end of their meeting in September, members of the CBN’s Monetary Policy Committee (MPC) attributed the increase in lending in the economy to the CRR and LDR policy and urged the CBN to intensify such measures.
According to the communiqué: “The Differentiated Cash Reserves Requirement (DCRR) and the minimum Loanto- Deposit Ratio (LDR), have ensured a significant stream of credit to the real economy. As at end-August 2020, aggregate bank credit had risen by about N3.7 trillion relative to its level in May 2019, when the LDR policy was introduced.
The outlook for credit to the economy remains positive given that these policies are still in place and, importantly, that the banking industry continues to be resilient.”
However, even though it noted that the LDR policy has significantly helped to boost lending to the real sector, as well as reduce the cost of borrowing, Nova Merchant Bank, in a recent report, stated that the frequent debiting of lenders that fall short of both the LDR policy and CRR obligations, had led to an increase in the cost of funds across the banking system.