The devaluation of the currency by the regulator who seeks to stabilise the economy and the containment measures that made household purchases impossible during Covid-19 crisis are mainly responsible for increases in deposits at banks.
The cumulative total deposit of the largest lenders in Africa’s most populous nation increased by 13.89 percent to N38.36 trillion in September 2021 from N33.68 billion as at September 2020, according to data by MoneyCentral.
The deposit itself is a liability owed by the bank to the depositor. It refers to this liability rather than to the actual funds that have been deposited. When someone opens a bank account and makes a cash deposit, he surrenders the legal title to the cash, and it becomes an asset of the bank. In turn, the account is a liability to the bank.
Banks are expected to turn these deposits into money by extending them as loans and charging customers an interest for money that is being borrowed.
The growth was partly driven by Naira devaluation. Whilst the overall deposit portfolio is reported in Naira, about fifth of Nigerian banks deposit is in foreign currency, according to an industry analyst who doesn’t want his name mentioned.
“In addition, corporate and households were cautious on spending in 2020 as these economic agents wanted to have savings for precautionary needs. So, businesses were rather keeping excess cash against given uncertainties. Likewise, individuals wanted to save and spend on essentials,” said the analyst.
Interestingly, the combined deposits of the largest banks surged by 37.89 percent to N33.68 billion in September 2021 from N24.43 billion the previous year.
The average industry total deposit to total asset reduced to 68.49 percent in the period under review from 67.33 percent, according to MoneyCentral calculations.
The uptick in economic performance on the back of the reopening of the economy and vaccines implementation helped shrink deposits in 20121, and it was expected that an uptick in propensity to spend by households should reduce liabilities in the balance sheet.
The country’s real GDP grew by 4.03 percent year on year (yoy) in the third quarter of the year, according to recent data by the National Bureau of Statistics (NBS).
Some banks have attributed growth in deposit to increased customer acquisition via our retail channels while they continue to leverage innovative digital technology and financial inclusion to mobilise sustainable low-cost deposits
Zenith Bank’s total deposit to customers was up 15.62 percent to N6.04 trillion in September 2021 from N5.22 billion the previous year.
Access Bank’s total deposit increased by 15.77 percent in September 2021 from N7.57 billion in the period under review from N6.45 billion the previous year.
Fidelity Bank’s total deposit spiked by 31.67 percent to N1.97 trillion in September 2021 from N1.49 trillion the previous year.
Banks and merchant banks deposit with the apex bank dropped by 58.14 per cent in 2021 as a lot of them are struggling to meet the central bank’s 65 percent loans to deposit ratio.
Banks and merchant banks through the Standing Deposit Facility (SDF) on daily basis deposit excess funds with the apex bank at an applicable interest rate of 4.5 per cent at an asymmetric corridor of +100/-700 basis points around the 11.5 per cent Monetary Policy Rate (MPR).
SDF is a monetary policy operation used by CBN’s around the world to absorb deposits from banks, without involving the use of government securities as collateral in return.
However, their borrowings from the CBN grew by 79.3per cent to N13 trillion in 2021 from N7.25trillion in 2020.
“Because CBN is implementing the discretionary CRR, banks are being careful in terms of sourcing for deposits because it doesn’t make sense for you as your bank to get deposits and then CBN is actually holding them sternal. So, banks are being careful with deposits,” said Ayokunle Olubunmi, Head Financial Institutions’ Ratings Agusto & Co.
“2022 is going to be much more drastic if the CBN does not change their stance. Because what we have seen last year is that banks are getting a bit more reluctant to lend. If not well managed, it could cause a dysfunction in the economy,” Olubunmi.