For the first time in 2022, the Central Bank of Nigeria (CBN) has wielded the big stick and debited Zenith Bank Plc, Providus Bank, First City Monument Bank (FCMB) Limited and 11 other banks N356.1billion for failing to meet its 27.5 per cent Cash Reserve Requirement (CRR) obligation.

The fresh debit, which THISDAY reliably gathered occurred last Friday, has left many stakeholders in the banking very upset as the apex bank recently suspended debiting banks for not meeting the requirement.

According to data obtained by THISDAY, Zenith Bank and Providus Bank were the most hit while Fidelity Bank Plc was the least debited bank by the CBN.

A breakdown showed that Zenith Bank and Providus were debited N170 billion, N40 billion respectively. Others are: FCMB N39 billion, First Bank of Nigeria Limited N27 billion, Guaranty Trust Bank Plc N20 billion and Citibank N12 billion.

Stanbic IBTC bank, Union Bank of Nigeria Plc and Polaris Banks were debited N10 billion each, Keystone Bank was debited N6 billion, Ecobank Nigeria N5 billion, Sterling Bank Plc, N3.6 billion, Fidelity Bank N2 billion and Nova merchant bank N 1.5 billion.

The last time CBN debited 16 banks and two merchant banks N175 billion was mid-December 2021.
CBN data showed that Zenith bank was the most debited bank on November 17, 2021, followed by Access Bank Plc and United bank for Africa Plc (UBA).

The breakdown of some affected banks revealed that, Zenith bank-N90 billion, Access bank-N25 billion, Unity Bank Plc- N500 million, FCMB Limited- N5 billion, and Stanbic Bank- N4 billion, Polaris- N3billion and UBA- N25billion.

The CBN had on December 8, 2021 debited seven banks and two merchant banks a sum of N29.6 billion.
Analysts believe cash reserves are historically between 5 per cent and 10 per cent of LCY deposits.
Analysts at Agusto & Co. In a report titled, “Economic outlook for 2022. Our storyline”, explained that: “At the end of 2021, mandatory CRR of banks stood at about 35 per cent of LCY deposits.

Historically, cash reserves were between five per cent and 10 per cent of LCY deposits. In Ghana and Kenya, there are currently eight per cent and 4.25 per cent of LCY deposits respectively.

“In addition to these mandatory CRR, Nigerian banks hold “special bills” , issued by the CBN, that bear interest at 0.5 per cent per annum. These “special bills” are not easily convertible into cash and are, in substance, interest bearing cash reserves.

“We estimate that cash reserves (including interest bearing cash reserves) were about 50 per cent of LCY deposits at the end of 2021. We do not believe that the CBN will reduce this ratio significantly in 2022, as it continues to see this as a major instrument for maintain “stable” exchange rates.”
On his part, Vice President, Highcap Securities Limited, Mr. David Adnori said the CBN is using CRR to control inflation, stressing that the introduction of CRR is a drastic monetary policy to control money supply in the banking system.

According to him: “If CBN fails to maintain its CRR policy, so much money will flow into the market and further deprecates the naira. Generally, the policy has not favoured banks because the fund is not yielding any interest and of no benefit to the productive sector.

“These are funds banks lend to the real sector to drive business activities, finance working capital of productive sector and boost GDP but the CBN is holding it down. It is not a good development for the nation’s economy in general.

“However, CBN has its reasons and releasing these funds, it might result in hyperinflation which can damage the nation’s economy. It is like a double edge situation- if you don’t do it, the economy is damaged and if you do it, the economy also struggles.”

He expressed that the only way CBN can cut CRR is when inflation dropped to a single-digit rate.
The National Coordinator Emeritus, Independent Shareholders Association of Nigeria (ISAN), Sunny Nwosu had stated that the 27.5 per cent CRR has not also yielded the desired economic results after the first phase of Covid-19.

He noted that shareholders are worried about the state of commercial banks and the safety of local portfolio investors’ investments following the repeated fleezing of the banking industry by CBN.
Nwosu explained further that the continuous debit of banks under CRR by CBN is putting the banking sector under serious threat and a compelling impotency toward sustainable intervention in the real sector.

“We urge CBN to seriously have a rethink on CRR and among other things to enhance the performance of the financial sector of the economy. The challenge character of Nigerian economy makes it imperative for CBN to pay interest on restricted deposits.

“Banks restricted deposits with CBN are idle funds. We argue that if these funds are with banks, certainly it will enhance their earnings, loans to real sector and returns for shareholders.
“If CBN can pay at least three per cent interest on the mandatory CRR deposits, it will go a long way in driving the real sector and the payment of robust dividends to shareholders,” ISAN said.
CRR is the minimum amount banks and merchant banks are expected to retain with the CBN from customer deposits.

In early 2020, the apex bank’s Monetary Policy Committee (MPC) increased CRR by five per cent from 22.5 per cent to 27.5 per cent over its intention to address monetary-induced inflation whilst retaining the benefits of its 65 per cent Loan Deposit Ratio (LDR) policy.

The monetary policy that was introduced by CBN in 2019 has drawn mixed reactions from stakeholders who have cited a drop in banks profit, among others.

The Governor, CBN, Mr. Godwin Emefiele at the end of January 2020, MPC noted that: “the committee is confident that increasing the CRR at this time is fortuitous as it will help address monetary-induced inflation whilst retaining the benefits from the Bank’s LDR policy, which has been successful in significantly increasing credit to the private sector as well as pushing market interest rates downwards.

“The Committee further encouraged the Management of the Bank to be more vigorous in its drive to improve access to credit through its pursuit of the Loan-to-deposit ratio policy as doing this would help, not only in creating job opportunities but also help in boosting output growth and in moderating prices.”