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CRR: CBN debits banks N459.7bn

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CRR: CBN debits banks N459.7bn

The Central Bank of Nigeria (CBN) has debited 26 banks a sum of N459.7 billion for failure to meet their Cash Reserve Ratio (CRR) obligations. The fresh debit, according to multiple sources, occurred Thursday and has left many stakeholders upset.

The CRR is the minimum amount banks are expected to retain with the apex bank from customers’ deposits. In January, the CRR was increased by five per cent to 27.5 per cent by the CBN’s Monetary Policy Committee (MPC) to address monetary-induced inflation while retaining the benefits from the Loan-to-Deposit-Ratio (LDR) policy.

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Among the banks that were most affected, according to Nairametrics, are UBA (N82.3 billion), First Bank (N59.3), Zenith Bank (N50 billion), First City Monument Bank (FCMB) (N45 billion), and Guaranty Trust Bank (N40 billion).

The latest debits are coming barely one month after many lenders were collectively debited N1.4 trillion for same reason in April. During the last MPC meeting, members voted to retain the CRR at 27.5 per cent. The rate was increased in January by 5 per cent to its current level after the apex bank cited inflationary pressure concerns. What this means, therefore, is that the banks are required to keep 27.5 per cent of their deposits as CRR with their regulator.

The move, in addition to similar policies, was beleivedto have left many banks cash-strapped and unable to pursue various profitable ventures. While reacting to the latest development, a banker (who refused to be identified) confided this in Nairametrics:

“What we’ve seen in recent times is that the CBN just indiscriminately debits banks, usually towards the end of every week. They will look at your bank account and if your liquidity is plenty, they will debit you.

“You know the central bank also does what we call retail FX intervention, that is when they sell FX to corporates. Now, because they don’t want banks coming with huge demands, what they do is that a day before the FX sales, they debit the banks so that the naira you have available is small and you cannot put them under pressure because of your FX demands. That has really been the driver.

“We understand that the central bank had set up a special CRR team that is supposed to monitor banks’ CRR once a month. But now, the team monitors banks’ CRR on a weekly basis. This is why the central bank is effectively debiting banks on a weekly basis. Some weeks ago, they debited some banks about N1.4 trillion. That was one of many. Between that time and now, there have been more debits that have happened. But the debits that are huge/significant are what is troubling the banks. There was a N300 billion that happened about two weeks ago. and then yesterday this N459.7 billion was also debited.

“These are huge amounts that are leaving the banking sector. It’s a squeeze on the banks. A bank like First Bank, for instance, has about N1.4 trillion in CRR with the Central Bank. And there is Zenith Bank with equally as much as N1.5 trillion. These are monies that banks can potentially put in loans at 52 per cent, at 30 per cent, or even put in money market instruments at maybe 10 per cent. So, for a shareholder of these banks, this CRR debits are impairing the banks’ ability to increase their earnings because now they are not able to use the funds that are legitimately theirs to create money for their shareholders. And the question is that under what framework is the Central Bank choosing to take people’s money?”

The CBN has deployed several policies in the past two years to contain the devaluation of the naira and support fiscal measures that are yet to be complimentary.

An analyst inform Nairametrics that it appears the CBN no longer relies on the CRR charge but rather arbitrarily debit bank accounts.

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