BEVERLY HILLS, October 28, (THEWILL) – The Central Bank of Nigeria (CBN) has debited banks of Cash Reserve Ratio (CRR) worth N926.4bn for breach of its lending policy.
Loan to Deposit Ratio (LDR) is a ratio, represented in percentage, between a bank’s total loans and total deposits.
The banks affected in the CRR deduction include Zenith Bank Plc (N290bn), UBA (N160b), Access Plc (N140bn), FBN (N95bn), GTB (N55bn), Polaris (N30bn), Keystone (N30bn), Standard Chartered Bank (N24bn), Fidelity (N15bn), FCMB (N11bn), Ecobank (N11bn), Stanbic (N10bn), WEMA (N10bn), Coronation (N3.9bn), Sterling (N8bn), Citi (N6bn), Union (N5bn), Providus (N5bn), RMB (N5bn), FSDH (N1.5bn), NOVA (N1bn) Globus (N3bn) and Unity (N7bn).
With these deductions, the Apex bank has debited a total of N1.4 trillion from the banks in one month. On October 9, 2020, the regulator debited banks of CRR worth N462.7 billion for breach of its lending policy.
In June 2019, the Central Bank announced a new policy measure, which required Deposit Money Banks (DMBs) to maintain a minimum 60% Loan to Deposit Ratio (LDR). The objective was to grow the economy through making credit available to the real sector of the economy. The CBN later raised it to 65 % and set December 2019 as the deadline for compliance by banks.
“We give them incentives that when they lend to the Small and Medium Enterprises (SMES), and private sectors, they will be granted certain dispensations to make them happy while failure to comply will result in taking 50 percent of the un-lent portion of their loans into the CRR. What the deduction means for the sector is that it puts pressure on the Net Interest Margin of the banks as these funds earn zero interest with the CBN. This is responsible for the low deposit rates in the banks as banks may be wary of taking deposits. On the positive side, the economist said the low interest rate has shifted investors’ focus to other asset classes with higher yield which aligned with the CBN’s position”, CBN governor, Godwin Emefiele explained.
In July 2019, the CBN wielded the first big stick on 12 banks for LDR default to demonstrate its determination to jumpstart the economy. The regulator deducted N500 billion from the accounts of 12 banks for failing to meet the target to provide credit to their customers.
The deduction will continue to increase the effective CRR beyond the statutory threshold and limits the ability of the banks to consider other likely potential income positions, according to Nigeria’s Economist and Investment Professional.
The CBN at the first meeting of the Monetary Policy Committee (MPC) in January increased the CRR to 27.5% from 22.5%. The increase then was as a result of concerns on the excess liquidity in the banking sector, occasioned by open market operations (OMO) ban for non-bank investors and corporate.
