The ‘punitive policies’ by the Central Bank of Nigeria (CBN), especially the Cash Reserve Ratio (CRR) debits on Nigerian banks will have a negative impact on their earnings, top International Rating Firm, Fitch Ratings has predicted.
This is even as the CRR debits on Nigerian banks have exceeded the N2 trillion mark in 2020 alone.
The CRR is the minimum amount banks are expected to retain with the CBN from customers deposits. In January 2020, the Monetary Policy Committee (MPC) of the CBN raised the CRR by 5% to 27.5%
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This move has been frowned on by Fitch Ratings who pointed out that keeping those huge idle cash with the CBN in a non-interest yielding account puts a lot of pressure on the earnings of the banks, as they would have been put to better use through ventures such as lending.
According to the Senior Director for Europe, Middle East, and Africa at Fitch, Mahin Dissanayake, in an interview, monitored by The New Diplomat disclosed that the CBN’s action is coming at a time when other countries are giving banks extra leeway to fight the economic fallout of the coronavirus.
“The Central Bank of Nigeria has been highly interventionist. Where peers like South Africa and Kenya followed the global trend of giving banks more room to lend, Nigeria hasn’t budged. Instead, it stuck with a cash reserve ratio that compels lenders to park 27.5% of their deposits with the central bank.
The CRR is unique and hugely punitive. The regulation is aimed at reducing the amount of money in the financial system to keep inflation in check.’’
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Dissanayake disclosed that enforcement of these policies and penalties have caused an effective hit on capital to between 40% and 50%.
“Nigerian banks, compared to other markets operate in a volatile environment. The banks have to deal with economic shocks, short credit cycles, and persistent problems in the oil sector. They also have to deal with policy actions, policy uncertainty, and regulatory risks” he added.
A few weeks ago, the CBN debited banks an additional sum of N118 billion for breaching its CRR requirements. That debit makes it the fourth time by the CBN in 2020 and brings the total sector debits for 2020 to about N2.2 trillion.
Zenith Bank, UBA and First Bank were the most hit by the CRR debits. They were closely followed by Stanbic IBTC and Standard Chartered. The least affected were Fidelity and Access Banks.
