To Curb Excess Liquidity, Zenith Bank, Eight Other Banks’ Cash Reserves with CBN Rise to N15.5tn

Kayode Tokede

Zenith Bank Plc and six other Nigerian banks’ cash reserves surged to N15.5 trillion in the half year ended June 2024, representing a substantial increase of nearly 11.4 per cent from N13.9 trillion reported in the 2023 financial year, as the Central Bank of Nigeria (CBN) sustained its aggressive monetary tightening.

The other eight banks are Guaranty Trust Holding Company Plc (GTCO), FBN Holdings Plc, United Bank for Africa Plc (UBA), Fidelity Bank Plc, FCMB Group Plc, Wema Bank Plc, Sterling Financial Holdings Company Plc, and Stanbic IBTC Holding Plc.

Cash Reserve Ratio (CRR) is a specified minimum fraction of the total deposits of customers, which commercial banks have to hold as reserves either in cash or as deposits with the central bank.

The jump in CRR of these seven banks comes in response to the CBN’s Monetary Policy Committee (MPC) efforts to contain rising inflation and curtail excessive liquidity in the financial system.

In the period under review, Zenith Bank declared N4.14 trillion mandatory reserve deposits with the central bank (about six per cent increase from N3.9trillion reported in 2023FY), while UBA announced N2.992 trillion mandatory deposit with CBN as of June 2024, a growth of 13 per cent from N2.66trillion reported in 2023 FY.

On its part, FBN Holdings, announced N2.85 trillion mandatory reserve deposits with CBN as of June 30, 2024, about a 35 per cent increase from N2.11 trillion, while GTCO reported N1.78 trillion mandatory reserve deposits with the central bank as of June 2024, an increase of 8.3 per cent from N1.65 trillion.

GTCO in a presentation to investors and analysts said, “On the back of the increase in Naira deposits and modification to CRR determinants by Bank of Ghana (BOG), total sterilised funds (SF) grew by 8.3per cent to N1.782trillion in H1 2024 from N1.647trillion in 2023, CRR and the Statutory Liquidity Ratio balances with CBN represented 99per cent of this sum, closing at N1.732trillionn and N50.6billion, respectively.

“Consequently, CRR ratio to Naira deposits closed at 43.3 per cent in H1 2024 from 42per cent in 2023, a 1.7per cent (170bps) shy of the harmonised CRR of 45per cent advised by the CBN,” the bank said.

FCMB Group announced N974.62 billion as of June 2024, a significant increase of 25.5 per cent from the N776.5billion reported in 2023FY; Fidelity Bank reported N982.56billion mandatory deposit with CBN as of June 2024, nearly four per cent higher than the N945.04billion reported in 2023FY and Wema Bank revealed N707.47 billion restricted deposit with CBN as of June 2024, about 41 per cent increase from N503.3billion reported in 2023FY.

In addition, Sterling Financial announced N578.95billion mandatory deposit with CBN as of June 2024, about 29 per cent increase from N447.7billion reported in 2023, and Stanbic IBTC alsoN493.8billion mandatory deposit with the apex bank as of June 2024, a decline of 47 per cent from N928billion reported in 2023FY.

At its most recent MPC meeting, the committee raised the Cash Reserve Ratio (CRR) to 50per cent from 32.5per cent it closed last year, a clear indication of the apex bank’s determination to mop up excess liquidity from the banking sector.

Also, the Monetary Policy Rate (MPR) or interest rate was raised by 850 basis points this year to 27.25 per cent from 18.75 per cent it closed in 2023, signalling a continuation of its tightening cycle.

At the last MPC meeting, the governor of CBN, Mr. Yemi Cardoso raised the CRR for Deposit Money Banks (DMBs) by 500 basis points to 50 per cent from 45 per cent and Merchant Banks by 200 basis points to 16 per cent from 14 per cent.

Since taking office, Cardoso has relied heavily on the CRR to manage liquidity, drive up reserves, and temper inflationary pressures.

The CRR, which stood at 27.5 per cent in September 2022, was first increased to 32.5per cent under the previous leadership.

However, it wasn’t until Cardoso’s first MPC meeting in February 2024 that the CRR was sharply raised to 45per cent, with further increments pushing it to 50per cent in August 2024.

In addition, the March 2024 MPC meeting saw an increase in the CRR for Merchant Banks, from 10per cent to 14per cent.

The CBN’s policies come in response to the twin challenges of the inflation rate and unstable naira at the foreign exchange market.

Nigeria’s inflation rate remains persistently high at 32.15per cent as of August 2024, driven by structural inefficiencies, global price pressures, and volatile energy costs.

Stakeholders have voiced concerns over the impact of these aggressive CRR hikes. With the CRR now at 50per cent, banks are compelled to lock half of their customer deposits at the CBN, where they earn no interest.

Yet, they continue to pay interest on the full 100per cent of deposits they receive.

Speaking with THISDAY, the Chairman of Progressive Shareholders Association of Nigeria (PSAN), Boniface Okezie, said that shareholders have been calling on the CBN to pay interest to these banks’ restricted deposits, stressing the negative impact on robust dividend payout.