…CRR signals risk to financial intermediation, stability of banking system —Former DG, LCCI
…Current rate, too high for financial sustainability
By Seth Akande, Abimbola Abatta, Ariemu Ogaga, Seun Ibiyemi, Uthman Salami
The Cash Reserve Ratio (CRR) debits from ten prominent locally owned commercial banks in Nigeria hit N10 trillion in 9 months.
The banks include Access Bank, GT Bank, FBN Holdings, FCMB, UBA, Sterling Bank, Union Bank, Stanbic IBTC, Fidelity Bank, and Zenith Bank Plc.
According to data contained in the money and credit stats of the Central Bank of Nigeria (CBN), the apex bank has a cumulative amount of N10 trillion in CRR debits for the first 9 months of 2021.
The commercial banks reported a CRR of N8.04 trillion in the first 9 months of 2021, which is 1.6% higher than the N7.9 trillion held by the central bank in the entire 2020.
Data gathered from the financial statements of the major banks listed on the Stock Exchange revealed the above.
It was learnt that about N8 trillion was held by CBN as CRR debits from the 10 banks out of a total deposit of N34.3 trillion.
This amount represents an average of 23.4% compared to 25.7% a year ago and much lower than the 27.5% CBN stipulated as CRR.
However, as contained in the money and credit statistics of the CBN, about N10 trillion is held by the CBN as CRR for all banks. Last year, it was N11.1 trillion during the same period.
While the average is lower in the first 9 months of 2021, some banks recorded a higher CRR compared to others. Stanbic IBTC, for example, had about 44.6% of its deposits kept with the central bank as CRR.
The effect can be seen in Stanbic’s interest income over the years. From recording an interest income of N91 billion in the first 9 months of 2019, the bank’s income from interest dropped to N81.9 billion and N73 billion in the first 9 months of 2020 and 2021 respectively. The CRR of N488 billion is also 59% of its loan book of N827 billion.
Union Bank also reported a significantly higher CRR to deposits at 36.2% after the CBN kept N464 billion of its deposits. Other banks under review had CRR below the regulatory limits in the first 9 months of the year.
The top 3 banks in terms of customer deposits are Access Bank, Zenith Bank, and FBN Holdings, with Access Bank leading with the highest CRR of N1.37 trillion.
Meanwhile, by regulation, the CBN compels banks to retain up to 30% of their deposits in cash reserve requirement. This implies that the banks cannot access the deposits for loans and advances.
The policy started in 2019 and has attracted criticisms from most of the banks who have referenced a drop in their interest income as a major consequence.
CRR signals risk to financial intermediation, stability of banking system – Former DG, LCCI
While reacting to the development in an interview with Nigerian NewsDirect on Sunday, the CEO, Centre for Promotion of Private Enterprise (CPPE) and former Director General, Lagos Chamber of Commerce and Industry (LCCI), Dr Muda Yusuf said the current state of CRR portends major risk to financial intermediation and stability of the banking system.
According to him, “Nigeria’s CRR of 27.5percent is quite high. It is one of the highest globally. Curiously, it has become a permanent feature of our monetary policy.
“The worry by the CBN about excess liquidity is understandable. But that is not enough justification to keep the CRR at such high level even at a time when we are seeking to fix a stumbling economy.
“Current levels of CRR also poses a major risk to financial intermediation and the stability of the banking system. Financial intermediation is the primary purpose of a banking system. The banks are failing in this role partly and significantly because of the high CRR. It also has implications for the shareholders of banks as well as the cost of credit to borrowers.
“I believe that the ways and means financing has much bigger implication for money supply growth and the resultant excess liquidity in the economy than the CRR,” he said.
Current rate, too high for financial sustainability sustainability – Analyst
On his part, an Economist and Public Affairs Analyst, Bala Zakka, averred that the current rate of the Cash Reserve Ratio (CRR) is too high for sustainability.
“As far as I am concerned, the level of percentage (30%) of the CRR is high because by the time you put that kind of figure, how do you expect some of these commercial banks to survive? Although I know it’s also a way of making sure there is a caution in case something goes wrong, the CRR is still very high,” he said.
On the report that some Nigerians see the CRR as a technique by the CBN to defraud the commercial banks, he said, “Since the CRR is that high, whatever insinuation the Nigerian populace is going to come up with should not surprise anyone because of the ways, strategies, conventional and unconventional ways the government have been adopting to get money or cash to finance the 2022 budget. I won’t be surprised if I hear insinuations.
“In the past, we will assume the government was not going to dabble into something, but before you know it, that thing will be a reality.
“There was even this rumour that the pension fund or contribution have been tampered with. So, when you are dealing with the government where so many things you do not expect to happen and certain information are coming up, you will think they are rumours, but before you know what’s happening, they are reality. One has no option than to just say anything is possible in Nigeria, especially when dealing with the government and the economy.
“The Government has done so many strange things. I even heard that from 2022, they want to start charging 7.5 % VAT on zoom, is that not crazy? People are insinuating that it’s probably an avenue for the government to defraud Nigerians and most importantly, commercial banks. So anything is possible.
“The Government has put itself in a position of doubt. It might be a rumour today, but I won’t be surprised if it is criticised tomorrow and it’s confirmed,” he added.