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Bank Deposits Hit 4-year High While Interest Payments to Customers Slide

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As Nigerian bank deposits hit a four-year high, interest payments by lenders to depositors went in the opposite direction, on the back of a lower interest rate environment.

The largest lenders saw total deposits from customer’s spike by 16.0 percent to N30.0 trillion as at June 2020, that compares to N17.21 trillion recorded in June 2016, according to data compiled by MoneyCentral.

Meanwhile banks saw a reduction in collective interest expense on deposit from customers to N317.46 billion in June 2020 from N369.75 billion as at June 2019.

Small and Midsized banks had more reduction in interest expense on customer deposit than the big ones as Fidelity fell (-26.36); Union Bank, (-32.10 percent); Sterling Bank, (-19.58), and Stanbic IBTC Holdings (- 43.33 percent).

A trend analysis of customer deposit shows it was up 13.05 percent to N25.78 trillion in 2019, and it increased by 6.15 percent to N22.72 trillion in 2018; following an uptick of 24.34 percent to N21.40 trillion in 2017.

The acceleration in customer deposit mobilisation is due to lower cost of funds as interest rate on savings account was around 3.75 percent.

Consequently, it is rational for banks to seek low cost deposits with higher returns rather than looking to take high cost term or fixed deposits.

But Ayodeji Ebo, managing director of Afrinvest Securities told MoneyCentral that the tide could change because interest on savings has been revised to 1.25 percent starting from September 1.

This may make depositors to seek higher returns for their cash outside the banking system.

The central bank barred individuals and firms from its Open Market Operations (OMO), and that saw the Nigerian Treasury bills crash to an all-time low.

To spur economic lending to the real sector of the economy, the central bank hiked the minimum loans to deposit ratio of lenders to 65 percent with a deadline of December.

The Apex Bank also tighten the screw on banks as it hiked the cash reserve ratio (CRR) to 27.50 percent from 22.50 percent as it seeks to curtail excess liquidity.

The Central Bank of Nigeria (CBN) now debits Deposit Money Banks (DMBs) for not meeting CRR requirements. For instance, the apex bank had in June, debited 26 banks, including merchant banks to the tune of N459.7 billion for failure to meet their CRR requirements.

CRR is a mandatory part of a bank’s total deposit expressed in percentage, which a bank must maintain with the apex bank at all times, and subject to change at the discretion of the regulator.

However, global ratings agency Flitch has warned the stringent bank rules imposed by the central bank could weigh on banks’ income, and result in erosion of shareholders’ value.

“The CRR is unique and hugely punitive,” because the cash could’ve been put to better use than lying idle with the central bank” said Fitch.


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