The amount of restricted deposits by Nigerian lenders with the Central bank surged by 87 percent to N9trillion as at June 2020, from six months ago in December as higher cash reserve requirements took a toll on lenders ability to generate income.
All eleven banks that have released Half Year (H1), 2020 results saw an increase in the value of restricted deposits to varying degrees, data compiled by MoneyCentral shows.
The Central Bank of Nigeria (CBN) raised the cash-reserve requirement for lenders to 27.5 percent of total deposits, from 22.5 percent in January, to curtail excess liquidity in the banking sector, CBN Governor Godwin Emefiele said.
Mandatory reserve deposits are not available for use in bank’s day-to-day operations and compels lenders to park almost a third of their deposits with the central bank at zero interest.
FBN Holdings had the highest absolute amount of restricted deposits with the CBN with the value put at N1.64 trillion as at June, up 95 percent from N843billion in December 2019.
This is followed by United Bank for Africa (N1.52 trillion in mandatory reserve requirements), Zenith Bank (N1.4 trillion, Access Bank (N1.14 trillion) and Guaranty Trust Bank (N882 billion) to round off the top 5.
The CBN has been using the reserve requirement regulation as a blunt tool to curb the money supply and keep inflation in check.
It also debits the accounts when lenders fail to extend 65 percent of their deposits as loans, a measure that was introduced to stimulate credit.
The tighter rules and a slowdown in overall economic activity is weighing on the country’s biggest banks, with the NSE Banking Index down -15.3 percent year to date.
Fitch ratings revised its outlook for Nigerian banks to negative toward the end of last year.
Nigerian banks compared to other markets operate in a volatile environment,” Fitch said. “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.”