CBN Debits 14 Banks N356.1bn For Defaulting Cash Reserve Requirement

N170 billion loss hit Zenith Bank Plc on Friday as the Central Bank of Nigeria, CBN debited 14 banks of N356.1billion for failure to meet its 27.5 percent Cash Reserve Requirement (CRR).

The cash reserve ratio was increased from 22.5 percent to 27.5 percent in January 2020 by the apex bank with an intention to address monetary-induced inflation and sustain the benefits of its 65 percent Loan Deposit Ratio (LDR) policy.

Investors King reports that Nigeria has the highest reserve requirement in sub-Saharan Africa. Countries like South Africa, Ghana and Kenya have their ratios below 10 percent.

Meanwhile, stakeholders in the banking sector and analysts have frowned at the CBN’s Cash Reserve Requirement policy, describing it as huge and its impact greatly felt in the industry.

According to the CBN data on the latest deduction, Zenith Bank Plc was the most debited of the commercial banks and Fidelity Bank the least debited with N2 billion. A merchant bank was as well hit by the penalty.

The data revealed the debit details as: Zenith bank– 170bn, Providus Bank– 40bn, FCMB– N39 billion, First Bank of Nigeria– N27 billion, Guaranty Trust Bank Plc– N20 billion, Citibank– N12 billion, Stanbic IBTC bank– N10 billion, Polaris Bank– N10 billion, Union Bank of Nigeria Plc– N10 billion.

Other Banks debited include: Keystone Bank– N6 billion, Ecobank –N5 billion, Sterling Bank Plc– N3.6 billion, Fidelity Bank– N2 billion and Nova merchant bank– N1.5 billion.

Investors King recalls that in November, 2021, Zenith bank was also the most debited as it lost N90bn to CBN alongside Access Bank Plc and United Bank for Africa Plc (UBA) who were debited N25 billion.

In December 2021, CBN debited 16 banks and two merchant banks N175 billion for defaulting in the Cash Reserve Requirement.

Agusto & Co. in their report titled, ‘Economic outlook for 2022’, explained that cash reserves ratios are usually between 5 percent and 10 percent of local currency deposits.

It hinted that aside from the compulsory cash reserve ratio, banks hold special bills with 0.5 percent interest per annum. “These “special bills” are not easily convertible into cash and are, in substance, interest bearing cash reserves.

“We estimate that cash reserves (including interest bearing cash reserves) were about 50 per cent of LCY deposits at the end of 2021. We do not believe that the CBN will reduce this ratio significantly in 2022, as it continues to see this as a major instrument for maintaining “stable” exchange rates,” the report read.

Sunny Nwosu, the National Coordinator Emeritus, Independent Shareholders Association of Nigeria (ISAN) opined that the 27.5 per cent CRR has not impacted the economy with the desired outcome after the relaxation of the Covid-19 lockdown.

Nwosu pointed that the subsequent debit of banks by CBN is obviously a threat to the banking sector of the country as shareholders are worried about the state of banks and the safety of their investments.

Calling on CBN to rethink, he said, “Banks restricted deposits with CBN are idle funds. We argue that if these funds are with banks, it will certainly enhance their earnings, loans to the 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.”

However, the Vice President, Highcap Securities Limited, David Adnori explained that CRR is a monetary policy for the control of money supply in the banking industry and to reduce inflation. 

Adnori noted that if the CRR policy is not strictly followed, so much money will flow into the market thereby deprecate the naira. 

On the contrary, he pointed that “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 the 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.

“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,” Adnori concluded.