Sustaining Battle against Monetary-induced Inflation, CBN Debits 18 Banks N178.3bn over Violation of CRR Threshold

. Zenith Bank alone debited N90bn
.Banks now has effective CRR ratios of 35-45%
Kayode Tokede
The latest debit by Central Bank of Nigeria (CBN) on 16 commercial banks, and two merchant banks amounted to total of N178.3 billion over failure to meet 27.5 per cent CRR (Cash Reserve Ratio) threshold, THISDAY can report.

A top director in a Tier-II bank exclusively disclosed to THISDAY that the apex bank every week debited banks and merchant banks for not meeting the 27.5 per cent CRR threshold.

CRR is the minimum amount banks and merchant banks are expected to retain with the CBN from customer deposits.
In early 2020, the apex bank’s Monetary Policy Committee (MPC) increased CRR by five per cent from 22.5 per cent to 27.5 per cent over its intention to address monetary-induced inflation whilst retaining the benefits of its 65 per cent Loan Deposit Ratio (LDR) policy.

The monetary policy that was introduced by CBN in 2019 has drawn mixed reactions from stakeholders who have cited a drop in banks profit, among others.

According to the Tier-2 bank director who pleaded anonymity said: “The CBN continues to suck up liquidity from the system with consistent CRR debits. The debits now come more during Foreign Exchange (FX) bids days and is no longer tied to the 27.5 per cent rules that previously governing CRR debits.

“The average commercial bank now has effective CRR ratios of 35-45 per cent. The resultant opportunity cost is huge on the industry. The CBN can continue to ration FX supplies without the attendant liquidity squeeze. But this has become the industry norm.”

The CBN Governor, Mr. Godwin Emefiele had at the end of January 2020, MPC noted that: “the committee is confident that increasing the CRR at this time is fortuitous as it will help address monetary-induced inflation whilst retaining the benefits from the Bank’s LDR policy, which has been successful in significantly increasing credit to the private sector as well as pushing market interest rates downwards.

“The Committee further encouraged the Management of the banks to be more vigorous in its drive to improve access to credit through its pursuit of the Loan-to-deposit ratio policy as doing this would help, not only in creating job opportunities but also help in boosting output growth and in moderating prices.”

According to data obtained by THISDAY, Zenith Bank Plc was the most debited bank on November 17, 2021, followed by Access Bank Plc and United bank for Africa Plc (UBA).

SunTrust Bank and Unity bank Plc were the least debited by the apex bank in the month under review.
The breakdown of some affected banks revealed that, Zenith bank was debited N90 billion, Access bank (N25 billion), Unity Bank Plc (N500 million), First City Monument Bank (FCMB) Limited (N5 billion), and Stanbic Bank (N4 billion), Polaris (N3billion) and UBA (N25billion).

THISDAY learnt that the CBN on December 8th debited seven banks and two merchant banks a sum of N29.6 billion.
With a total of N9billion, FCMB was most debited bank, followed by Polaris Bank, N6billiion. Union Bank of Nigeria (N4billion), Sterling bank (N1.5billion) Ecobank (N1billion) Keystone bank (N3.3billion) Providus bank (N1billion), Coronation Merchant bank (N2.8billion) and Nova merchant bank (N1billion).

Analysts believe the CBN bank is using CRR to control inflation, stressing that the introduction of CRR is a drastic monetary policy by the apex bank to control money supply in the banking system.

“If CBN fails to maintain its CRR policy, so much money will flow into the market and further deprecates naira. Generally, the policy has not favoured banks because the fund is not yielding any interest and of no benefit to the productive sector. These are funds banks lend to the real sector to drive business activities, finance working capital of productive sector and boost GDP but the CBN is holding it down.

“It is not a good development for the nation’s economy in general. However, CBN has its reasons and releasing these funds, it might result in hyperinflation, which can damage the nation’s economy. It is like a double edge situation- if you don’t do it, the economy is damaged and if you do it, the economy also struggles, ”said Vice President, Highcap Securities Limited, Mr. David Adnori.

He noted that the only way CBN can cut CRR is when inflation dropped to a single-digit rate.
In a chat with newsmen recently, the National Coordinator Emeritus, Independent Shareholders Association of Nigeria (ISAN), Sunny Nwosu stated that the 27.5 per cent CRR has not also yielded the desired economic results after the first phase of Covid-19.

He noted that shareholders are worried about the state of commercial banks and the safety of local portfolio investors’ investments following the repeated fleezing of the banking industry by CBN.

Nwosu explained further that the continuous debit of banks under CRR by CBN is putting the banking sector under serious threat and a compelling impotency toward sustainable intervention in the real sector.

“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 challenge character of 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 real sector and returns for shareholders.

“If CBN can pay at least three per cent interest on the mandatory CRR deposits, it will go a long way in driving the real sector and the payment of robust dividends to shareholders,” ISAN argued.

Also, analysts at Agusto & Co. Limited disclosed that banking industry CRR with CBN exceeded N9.5 trillion in full year ended December 31, 2020.

Agusto & Co. in its 2021 Banking Industry Report said the Industry would have recorded a Return on Equity (ROE) of 31.6 per cent if not for the aggressive implementation of the CRR in 2020.

According to Agusto & Co. “However, given the need to moderate inflation amidst efforts to maintain a stable exchange rate, the CRR was increased and standardised to 27.5 per cent for both merchant and commercial banks. The standardised CRR was implemented alongside discretionary deductions.

“Agusto & Co notes that as at FYE 2020, the Industry’s restricted cash reserves exceeded N9.5 trillion and translated to an effective CRR of 37per cent. 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 10 per cent.

“We believe the elevated CRR level moderated the Industry’s performance and liquidity position during the year under review. Assuming the sterile CRR were invested in treasury securities at five per cent, N482 billion would have been added to the Industry’s profit before taxation. This would have increased the Industry’s return on average equity (ROE) by 11 per cent to 31.6 per cent in the financial year ended 31 December 2020.”