"Tough times for Nigerian banks as CRR hits record high"

" \n Tough times for Nigerian banks as CRR hits record high \n \n\n \n Nigerian banks will face increasing pressure on their profitability following a bumper increase in their Cash Reserve Requirement (CRR) by the Central Bank of Nigeria (CBN). \n \n\n \n Already one of the highest in the world, the CBN hiked banks\u2019 CRR by 500 basis points to 32.5 percent on Tuesday from 27.5 percent where it has been for two years. \n \n\n \n Godwin Emefiele, the CBN governor, said the banks would be debited on Thursday and threatened sanctions for banks that fail to fund their accounts before then. \n \n\n \n \u201cWe therefore expect that all the banks in Nigerian must fund their accounts by Thursday \u2013 within 48 hours \u2013 because we will debit them for CRR, a minimum of 32.5 percent, meaning we will take liquidity out of their valuation by then,\u201d he said at a press briefing after the Monetary Policy Committee meeting. \n \n\n \n \u201cIf any bank fails to meet up with this expectation, the decision of the MPC is that we may need to preclude those banks from foreign exchange market from Friday onwards until they meet the 32.5 percent.\u201d \n \n\n \n Nigerian banks had a combined deposit base of N48.64 trillion as at the end of March 2022. That implies that as much as N15.8 trillion, being 32.5 percent of N48.64 trillion, will now be kept with the CBN as CRR, yielding zero return to the banks. The CRR however affects only naira deposits. \n \n\n \n Banking stocks were the worst performers on the Nigerian Exchange on Tuesday as investors reacted negatively to the CRR hike. The banking index was down 0.65 percent, the most of any sector and higher than the overall market decline of 0.12 percent. \n \n\n \n Nigerian banks will now park 13 times more cash than their South Africa peers, whose CRR is only 2.5 percent with the central bank and more than two times the amount their Ghanaian counterparts keep with their central bank (15 percent). \n \n\n \n \u201cThe reality is that the effective CRR rate is even much higher and will be closer to 50 percent now with this hike,\u201d a senior banker who did not want to be named said. \n \n\n \n \u201cThe CBN is nationalising deposits and is giving out the CRR funds to the government via ways and means,\u201d the banker said. \u201cIt signals tough times for the banks as we must work even harder to deliver returns to shareholders when half of our deposits is sitting idle with the CBN, earning zero return,\u201d he said. \n \n\n \n The CRR is a percentage of customer deposits that banks must have in reserves locked away with the central bank without yielding any return. \n \n\n \n Nigerian banks have had to contend with arbitrary debits by the CBN under the CRR policy that has left them with less cash to do business with. In 2021, 10 banks were debited N7.02 trillion for violating the CRR guidelines. \n \n\n \n \u201cNigerian banks are really going through it,\u201d said Omotola Abimbola, an analyst at investment bank, Chapel Hill Denham. \n \n\n \n \u201cThe 32.5 percent Cash Reserve Requirement will be close to 50 percent unofficially. The N12.4 trillion fiscal deficit next year will essentially be financed with sterilised bank deposits at zero cost to CBN,\u201d Abimbola said. \n \n\n \n Analysts at Stanbic IBTC expect the CRR increase to result to N490 billion of liquidity sterilisation from their coverage banks, which include FBN Holdings, United Bank for Africa, Zenith Bank, FCMB, Access, Fidelity and Guaranty Trust Holding Company. \n \n\n \n \u201cWe expect FBNH to be the most negatively impacted with a likely debit of N233 billion, Zenith with a debit of N133 billion, UBA with a likely debit of N113 billion, a debit of N14 billion for FCMB and N6 billion for Access Bank,\u201d Toriola Idris, an equities trader at Stanbic IBTC, said in a note to investors. \n \n\n \n \u201cBased on our estimates, Fidelity (41.6 percent) and GTCO (42.5 percent) currently have CRR above the new limit of 32.5 percent. The debits should result to reduced asset yields and subsequently NIMs for the banks as the proposition of their non-interest yielding assets increase, consequently increasing downside risk on earnings,\u201d Idris said. \n \n\n \n The CBN also hiked interest rates to 15.5 percent from 14 percent, for the third straight meeting. That\u2019s the highest since 2006, with the apex bank guiding towards further rate hikes if inflation does not abate. \n \n\n \n Emefiele recalled his clear stance at the last meeting in July that the CBN would continue to raise the benchmark interest rate as long as inflation continues in an upward trajectory. \n \n\n \n \u201cI was very clear that as long as we see inflation trending upwards, that the MPC cannot give any assurance to anybody, that we will not continue to raise rates because inflation rates moved up very, very aggressively, and that is the reason we are following it up in May, July now, September to see how to possibly rein in soaring prices,\u201d he said. \n "

"Tough times for Nigerian banks as CRR hits record high"

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