CBN Takes Liquidity from Banks with N7.48trn Restricted Deposits

The Central Bank of Nigeria (CBN) is taking away liquidity from lenders with huge restricted mandatory deposits that undermines net interest margins and shareholders have urged the policy maker to reduce the cash reserve ratio (CRR).

MoneyCentral findings revealed that 10 banks have N7.48 trillion in restricted mandatory deposits with the apex bank, which is 9.52 percent higher than 2020’s N6.82 trillion.

The cash reserve ratio represents a mandatory total Naira deposits which should be held with the Central Bank of Nigeria (CBN) as a regulatory requirement.

“They don’t have so much liquidity at the end of the day. And may have to hike rates on fixed income deposits,” said Gbolahan Ologunro, equity research analyst with Cordros Securities.

“It will result in the compression of margins because the yields are already low,” said Ologunro.

Stakeholders say these funds have not been put to use by the CBN and that if they are with the banks, they will enhance their earnings and returns to shareholders.

“If CBN can pay at least three per cent on 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 dividend to shareholders,” said Boniface Okezie, Chairman, Progressive Shareholders Association of Nigeria.

Nigeria’s CRR, which, at 27.50 percent, is among the highest in the world as apex bank seeks to stabilize an economy susceptible to the vagaries of crude oil price and geopolitical risk.

Zenith Bank’s restricted deposit with the central bank stood at N1.25 trillion in December 2021, which is 6.05 percent lower than 2020’s N1.33 trillion.

Access Bank’s restricted deposit increased by 12.05 percent to N1.46 trillion in the period under review from N1.30 trillion as at December 2020.

United Bank for Africa (UBA)’s saw deposits rise by 3 percent to N1.13 trillion from N1.10 trillion the previous year.

Guaranty Trust Holdings Company (GTCO)’s deposit with the apex bank reduced by 7.15 percent to N953.17 billion in December 2021 from N1.02 trillion as at December 2020.

FirstBank Holdings’ deposit was up 56.79 percent to N1.32 trillion in 2021 from N843.43 billion the previous year.

First City Monument Bank’s restricted deposits were up 7.09 percent to N309.62 billion in the period under review as against N289.13 billion the previous year.

Stanbic IBTC Holdings’ restricted deposit increased by 21.54 percent to N42.17 billion in December 2021 from N348.17 billion the previous year.

The incessant debit to the account of lenders for failure to meet CRR requirement is a blow too many and it appears 2022 and 2023 will be tougher for them as election approaches.

The central bank governor Godwin Emefiele said the CRR was hiked to curb rising inflation and stabilise the economy.