CBN debits Banks N2.476tr as CRR in 3 months to strengthen Naira

Central Bank of Nigeria (CBN) debited N2.476trillion from the commercial banks between last April and July, as Cash Reserve Requirement (CRR) and as part of measures to strengthen the Naira.

This development has incited some shareholders’ groups to warn the apex bank not to push the banks off the cliff.

In July, CBN debited N216 billion from the banks with excess cash holdings as part of measures to strengthen the local currency.

In June, it was N460 billion from the accounts of the lenders that failed to meet the CRR targets for the previous month, May.

This is said to have occurred barely a month after many banks were collectively debited N1.4 trillion for the same reason in April.

However, banking sources had told a foreign news platform last month that the liquidity withdrawal came before the foreign currency auction.

“The central bank is trying to manage the foreign exchange (forex) rate, using the CRR”, one banker source said, adding that the debits had become frequent and over the 27.5 per cent limit.

The source said offshore lenders were the most affected by the levies since they don’t operate retail business and are debited from their corporate deposits or borrowings.

The CRR is described as the amount that the CBN debits from banks’ accounts in compliance with its monetary policy objective of mandatorily keeping cash on behalf of the banks.

The amount is not available for banks to use. By the CRR policy, banks have a mandate to keep 27.5 per cent of all deposits with the CBN.

It was 22.5 per cent last year, but it was jacked up to 27.5 per cent at the January Monetary Policy Committee (MPC) meeting.

Some banks have already forecast a decline in their profits this year due to this development. Fidelity Bank warned for instance, in April that 2020 profits would drop by 15 per cent.

Sterling Bank, early this month, stated that the amount of its customer deposits held by the CBN was about N215.5 billion, which “represents mandatory reserve deposits and are not available for use in the bank’s day-to-day operations”.

Fitch Ratings also predicted a 20 per cent hit in Nigerian banks’ revenue this year due to the CRR policy and forex scarcity.

The rating agency said that Nigeria’s banks would face rising borrowing costs as the CBN’s measures to support Naira would squeeze banks already hit by COVID-19 pandemic and oil price shocks.

It had also predicted that impaired loan ratios would rise sharply in 2020 with the Nigerian  banks most exposed to stress in the oil sector compared with their peers in emerging markets elsewhere.