Banks’ N17.60trn Trapped With CBN Stifles Lending, Investment

The Central Bank of Nigeria (CBN) is contributing to slowing economic activities with its tightening cycles which doesn’t free up money for lenders to lend and invest.

Shareholders and stakeholders have said that if 5 percent of the funds deposited with the Apex bank are given to financial institutions, it will magnify their earnings and returns to shareholders.

For the first nine months of 2024, the 9 largest lenders collectively deposited N17.60 trillion with the central bank, which 32.20 percent higher than 2023 N13.31 trillion, according to data gathered by MoneyCentral.

The Monetary Policy Committee (MPC) of the APEX Bank has raised the Cash Reserve Ratio (CRR) of deposit Money banks by 500 basis points to 50 per cent from 45 per cent.

Of course, the country’s CRR, which is one of the highest in the world, is stifling lending to the real sector of the economy as yield hungry investors say it hinders them from getting higher returns in the form of dividends.

The CRR is the minimum amount banks and merchant banks are expected to retain with the CBN from customer deposits and it carries no interest and is not available for use by the banks in their day-to-day operations. It is one of the ways CBN regulates the country’s money supply, inflation level and liquidity in the country. The higher the rate, the lower the liquidity with the banks.

With financial conditions not easing, it appears the policy maker is going to continue to cling to an aggressive monetary policy to curb a red-hot inflation.

The MPC of the central bank has voted to increase the monetary policy rate, which measures the benchmark interest rate, to 27.25 per cent.

Nigeria’s inflation rate increased in September for the first time in three months, climbing to 32.70 percent year-on-year from 32.15% in August, according to data released by the National Bureau of Statistics (NBS).

“The funds deposited by banks to CBN are not used. If these funds are with banks, certainly it will enhance their earnings and returns to shareholders. It will create more banking expansion. The deposit fund is meant for bank customers and banks cannot make use of them,” said Boniface Okezie, Chairman, and Progressive Shareholders Association of Nigeria (PSAN).

“If CBN can pay at least three per cent of the mandatory funds collected from banks, it will go a long way to help banks to have more money and drive the real sector of the nation’s economy and pay robust dividends to shareholders,” said Okezie.

Zenith Bank’s mandatory reserve deposit with the central bank surged by 89.16 percent to N4.80 trillion in September 2024 from N2.54 trillion as at September 2023.

Access Holdings’ mandatory reserve deposit increased by 18.70 percent to N3.68 trillion in September 2023 from N3.10 trillion the previous year.

Guaranty Trust Holdings (GTCO) Plc saw its reserve deposit increase by 43.14 percent to N2.35 trillion in the period under review from N1.64 trillion the previous year.

United Bank for Africa (UBA) Plc’s figure moved by 5 percent to N2.79 trillion in September 2024 from N2.65 trillion the previous year.

FBN Holdings Plc mandatory cash deposit with the Apex Bank was up 46.14 percent to N3.08 trillion in September 2024 from N2.10 trillion the previous year.

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