The Central Bank of Nigeria (CBN) debited Deposit Money Banks (DMBs) in the country N917.5billion in the week ended October 23rd, 2020, 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.
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.
Since then, the apex bank has regularly debited lenders that fall short of its CRR targets. Indeed, H1’ 2020 results released by some banks give an idea of the amounts 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 30, 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. Analysts also estimate that between January and July 2020, the CBN sequestered about N4.8 trillion from DMBs with excess cash holdings.
Industry watchers 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.
As part of its efforts to drive credit growth, especially to the real sector of the economy, the CBN had in July last year, directed lenders to maintain a minimum LDR of 60 per cent effective from September 30, 2019.
According to a recent Nova Merchant Bank report, the frequent debiting of lenders that fall short of both the LDR policy and CRR obligations, has led to an increase in the cost of funds across the banking system, 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.
The report said: “The constrained liquidity in the banking system occasioned by the series of debits is resulting in increases in the effective cost of funds across the banking system, with the recent moderation in savings rate and falling interest rate on term deposits just moderating the impact.
Beyond doubt, we believe a gradual refund of excess CRR will have more positive impact on overall lending rates, spur credit demand and support the productive sectors of the economy.”