CRR: Ten Banks’ Restricted Deposit with CBN Hits N17.1tn

Kayode Tokede

As the Central Bank of Nigeria (CBN) maintained Cash Reserve Ratio (CRR) at 32.5 per cent in 2023, Zenith Bank Plc and nine other banks’ restricted deposit increased to N17.1 trillion, representing a growth of 72.7 per cent from N9.91 trillion reported in 2022.

The banks include: Access Holdings Plc, Guaranty Trust Holdings Company Plc (GTCO), United Bank for Africa (UBA) Plc, Stanbic IBTC Holdings Plc and Wema Bank Plc.

Other banks: FBN Holdings Plc, FCMB Group Plc, Sterling Financial Holdings Company Plc, and Fidelity Bank Plc,

The CRR is the minimum amount banks and merchant banks are expected to retain with the CBN from customer deposits and it carries no interest and is not available for use by the banks in their day-to-day operations.

It is one of the ways CBN regulates the country’s money supply, inflation level and liquidity in the country. The higher the rate, the lower the liquidity with the banks.

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 and in September 2022, it moved it to 32.5 per cent in a move to tame inflationary pressure.

The MPC at the first meeting in 2024 increased CRR to 45.00 per cent amid double-digit inflation rate.

A member of the MPC, Aku Odinkemelu in a personal statement said, “Given that most banks had CRR above the regulatory threshold of 32.50 per cent and the industry average of 39.36per cent at end-January 2024, I vote to raise CRR by 750 basis points.

“I am also aware that tightening of money supply will lead to increased borrowing costs for businesses, with consequences for both the bad debt portfolio of banks and the risks. I am, however, confident that the Bank’ supervisory tools are robust to address risks arising from monetary policy tightening.”

The Director -General, Financial System Stability, Philip Ikeazor, who is also a member of the MPC said, “Complementary tools like the CRR and the asymmetric corridor have direct impact on liquidity, thereby potent in taming inflation if applied consistently over required periods. Considering our unique circumstance where personal credit constitutes only 5.21 per cent of the banking industry total lending at end-January 2024, the CRR and the asymmetric corridor would be a most potent tools to moderate excess liquidity.”

In addition, the CBN governor, Mr. Olayemi Cardoso said, “Given the imperative to curb inflationary pressures, which could pose social challenges and impede long-term growth prospects, I am persuaded that the MPC must adopt an assertive stance by tightening monetary policy measures, with a medium-term inflation target of 21.40per cent by the end of 2024 in mind.

“Therefore, I cast my vote in favor of increasing the Monetary Policy Rate (MPR) by 425 basis points to 23.0 percent, raising the Cash Reserve Ratio (CRR) by 1250 basis points to 45.0 percent, and adjusting the asymmetric corridor to +100 and -500 basis points around the MPR.”

The CBN by regulation forces banks to retain up to 32.5 per cent of their deposits in CRR requirement, meaning that the deposits are not accessed by the banks for loans and advances.

The policy, which started in 2019 has drawn criticisms from most of the banks and shareholders who have cited a drop in their profit as a major consequence.

A reliable source in one of the Tier-2 banks explained to THISDAY that continued debits of CRR by CBN is putting the banking sector under serious threat, stressing that the hike to 42.5 per cent has mounted more pressure.

When the policy was introduced, banks were, however, complained bitterly that the CRR policy especially as it has affected their Net Interest Income.

Extracts from 2023 audited accounts revealed that, Zenith Bank, followed by Access Holdings and UBA recorded the highest restricted deposit with CBN.

Analysis of the banks’ 2023 unaudited results submitted on the Nigerian Exchange Limited (NGX), showed that Zenith Bank declared N3.9 trillion mandatory reserve deposits with the central bank, a 133.8 per cent increase from N1.67 trillion reported in 2022.

Access Holdings declared N3.11 trillion restricted deposit in 2023, a growth of 45.4 per cent from N2.14 trillion in 2022, while UBA posted N2.69 trillion restricted deposit in 2023, an increase of 109 per cent from N1.28 trillion reported in 2022.

Access Holdings in its 2023 financial report explained that, “Restricted deposits with central banks comprise the cash reserve requirements of the Central Bank of Nigeria and other central banks of jurisdictions that the Group operates in as well as the special intervention fund with the Central Bank of Nigeria of N89.58billion introduced in January 2016 as a reduction in the cash reserve ratio with a view of channeling the reduction to financing the real sector. These balances are not available for day to day operations of the Group.

“Restricted deposit with Afrexim comprise of $5million minimum balance expected to be maintained at all times for the duration of the $300million Afrexim term loan facility granted to the company.”

Furthermore, FBN Holdings declared N2.09 trillion restricted deposit with CBN in 2023, representing 34 per cent from N1.56 trillion in 2022. 

On its part, GTCO posted N1.65 trillion restricted deposits in 2023, a growth of 62 per cent  or N632.18 billion from N1.01 trillion in 2022 while Stanbic IBTC Holdings announced N1.01 trillion restricted deposit in 2023, a significant increase of about 109.5 per cent from N479.8 billion reported in 2022.

Stanbic IBTC Holdings noted that, “Balances with central bank include cash reserve of N927,598 million (Dec. 2022: N457,792 million) and special intervention fund of N20,817 million (Dec. 2022: N20,817 million) that are not available for use by the Group on a day to day basis. These restricted cash balances are held with CBN.”

As for GTCO, it explained that its liquidity ratio closed at 31.1per cent in 2023 down from 49.9per cent in 2022 due to N632.2 billion CRR increase.

GTCO in its investors and analysts presentation said, “CRR increase of N632.2billon mapped under restricted deposits with Central Bank largely accounted for the y-o-y dip in liquidity ratio. Despite the pressure from competition and the need to cover for regulatory CRR debits, the Group maintained an average liquidity ratio of 36.1per cent during the period under review.”

Shareholders of these banks over the years have expressed displeasure about restricted deposits with the apex bank not available for banking operations.

Speaking with THISDAY, Chairman, Progressive Shareholders Association of Nigeria (PSAN), Boniface Okezie, said shareholders have been advocating to CBN to pay interest to these banks.

He said, “The funds deposited by banks to CBN are not used. If these funds are with banks, certainly it will enhance their earnings and returns to shareholders. It will create more banking expansion. The deposit fund is meant for bank customers and banks cannot make use of them.

“If CBN can pay at least three per cent of the mandatory funds collected from banks, it will go a long way to help banks to have more money and drive the real sector of the nation’s economy and pay robust dividend to shareholders.”