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CBN debits banks N321.6bn for CRR default

The Central Bank of Nigeria (CBN) has debited about 17 lenders N321.6billion for failing to meet Cash Reserve Ratio (CRR) targets, Sunday Telegraph learnt Saturday.

 

The CRR is the minimum amount banks are expected to retain with the CBN from customer deposits. At its meeting in January this year, the CBN’s Monetary Policy Committee (MPC) had increased the CRR by 500 basis points from 22.5 per cent to 27.5 per cent to help soak up liquidity from the banking system, as part of measures to curb inflation and naira instability.

 

The apex bank often re-injects the liquidity to stabilise markets. Sunday Telegraph’s stable mate, New Telegraph reported last month that between June 5 and July 3, the apex bank debited lenders a total of N797.8billion for not complying with its CRR requirements. Specifically, on July 3, the regulator withdrew N122billion from the accounts of about 20 DMBs for noncompliance with the requirements.

 

Two weeks earlier, the CBN had collected N216.1bilion from 26 lenders for also failing to meet CRR targets. It had previously debited the same number of banks N459.7 billion on June 5 for the same violation. Before the aforementioned debits, the CBN, had in April, levied 28 lenders N1.4 trillion also for defaulting on their CRR obligations.

 

In fact, industry watchers estimate that between December 2019 and July 2020, the CBN had collected about N4.8 trillion from lenders with excess cash holdings. Furthermore, H1’ 2020 results released by some banks recently give an insight into the frequency of the CRR debits.

 

For instance, Union Bank of Nigeria 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.

 

Equally, 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. Analysts have said that given that the debits hamper wider lending, they could negatively affect banks’ performance this year.

Specifically, Senior Director EMEA bank ratings at Fitch Ratings, Mahin Dissanayake, said last month that: “Banks are dealing with slow growth, fall in lending, a lack of forex in the market and asset quality issues.” He, however, said that while he expects banks’ revenues to drop at least 20per cent this year, he did not expect any to make a loss.

 

In a recent chat with an online newspaper, the Managing Director of Sterling Bank, Mr. Abubakar Suleiman, was reported as saying that the CBN’s hiking of the CRR from 22.5 percent to 27.5 percent will not negatively im- pact the profitability of banks, since according to him, the system has been very liquid for a while now.

 

He was quoted as saying that: “The increase in CRR during the pandemic itself is actually marginal, so we were already at 22.5 percent prior to the pandemic. So the real increase between 22.5 and eventually to 27.5 is five percent.

 

“Beyond the fact that it represents a significant accumulation of liquidity that has not yet been deployed, which means that the banks increasingly have access to liquidity if they ever need it, it would be a squeeze on profitability to the extent that what goes into CRR cannot go into treasury bills or bond.

 

“But I think that loss of revenue… the banks will make up for it with a lower cost of funds because generally, the cost of funds has reduced significantly over the last two quarters, specifically on the back of the fall in the yield on treasury bills.

 

“So the yield curve has dropped significantly and therefore what you lose by putting up additional cash reserve, you gain because your cost of fund is much lower.

 

“So you’ll find as banks start to publish their results that over the last two quarters, there will be no significant impact on their profitability arising from CRR.”

 

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