Shareholders under the aegis of the Independence Shareholders Association of Nigeria (ISAN) have voiced their displeasure at the increase in banks’ mandatory cash reserve ratio (CRR).
Shareholders urged the main bank to reduce the CRR to 15 percent from 27.5 percent or pay interest on restricted deposits to banks, noting that banks had more than 12 trillion restricted deposits with the Central Bank of Nigeria (CBN).
Nwosu said the bank’s decision to lower most bank charges and fees, along with the increase in the CRR, amid expectations of mounting regulatory headwinds, was causing a setback in the sector.
CRR is a monetary policy tool used by the Bank of Nigeria (CBN) to control the money supply in the economy.
The CRR authorizes the central bank to seize up to 27.5 percent of customer deposits, effectively restricting banks’ access to money.
The lead bank debited a portion of banks’ deposits since 2019 as part of a CRR policy and mutually inclusive loan-to-deposit relationship that aimed to further boost lending to the private sector.
“We believe that the high level of CRR moderated the performance of the industry and the liquidity position during the year under review,” the statement said.
CBN Governor Godwin Emefiele admitted that the move was part of efforts to curb excess liquidity in the banking system, which is already seen as a contributor to the resurgence of the inflationary trend.
According to Nwosu, the strict monetary policy of the CBN has continued to hit the banking sector with a multiplier effect on the equity market and loss of added value for shareholders.
He said: “After a serious assessment of the CRR and the current AMCON scam, ISAN insists that CBN should pay interest to banks on restricted deposits to improve banks’ obligation to the real sector.
“As an alternative, the main bank should reduce the CRR to 15 percent to allow banks to declare significant dividends that encourage domestic investment.
“We urge CBN to reconsider the CRR and, among other things, to improve the performance of the fictitious sector of the economy.”
He said the challenge of the Nigerian economy made it imperative for CBN to pay interest on restricted deposits.
“Banks restricted deposits with CBN are dormant funds. We argue that if these funds are with the banks, they will certainly improve their earnings, loans to the real sector and returns to shareholders, ”Nwosu said in the statement.
He noted that CRR’s ongoing debits had put the banking sector under serious threat, noting that the main bank was denying banks the ability to earn income from customer deposits.
A breakdown of some banks debited via mandatory CRR showed that Zenith Bank Plc‘s restricted deposit with CBN increased from N680.26 billion in 2019 to N1.33 trillion in 2021, while FBN‘s restricted deposit Holdings Plc reached N1.32 billion in 2020 from N843 .44 billion in 2019.
FBN Ltd. and FBN Quest Merchant Bank Ltd. also had restricted balances of N1.3 billion and N39.37 billion respectively with CBN as of December 31, 2020.
Access Bank Plc‘s CRR deposit with CBN also grew to N1.31 trillion or a 54 percent increase from N848.85 trillion in 2019, while Guaranty Trust Holdings Plc (GTCO) reported N1.03 trillion of mandatory reserve with CBN in 2020 from N443 65 billion reported in 2019.
United Bank for Africa’s mandatory reserves with CBN also increased to N1.10 billion in 2020 compared to N832.11 billion in 2019.
The National Coordinator, ISAN, Mr. Anthony Omojola, said that interim reports from banks in 2021 showed low income following higher borrowing costs, as the increase in CRR further complicated the flow of foreign exchange from banks that already hit the COVID-19 pandemic and oil price shocks.
Omojola said that CBN’s storage of around N1.2 trillion from the banking system since it raised the CRR penny to 27.5 percent, along with AMCON’s sinking funds, raised serious concerns.
“That the restricted accumulated deposits of the banks until 2020, if invested in treasury securities at five percent, would add N482 billion to the earnings of the industry before taxes.
“The industry’s return on average share capital (ROE) would have increased 31.6 percent as of December 2020,” he said.