Amid the CBN’s efforts to limit liquidity, Zenith Bank, UBA, GTCO, and other banks reported having larger cash reserves of N15.5 trillion.
As the Central Bank of Nigeria (CBN) continued its aggressive monetary tightening, the cash reserves of Zenith Bank Plc and eight other Nigerian banks jumped to N15.5 trillion in the half-year ended June 2024, a significant increase of nearly 11.4% from N13.9 trillion reported in the 2023 financial year.
United Bank for Africa Plc (UBA), FBN Holdings Plc, Fidelity Bank Plc, FCMB Group Plc, Wema Bank Plc, Sterling Financial Holdings Company Plc, Guaranty Trust Holding Company Plc (GTCO), and Stanbic IBTC Holding Plc are the remaining eight banks.
The Cash Reserve Ratio (CRR) is a minimum percentage of total customer deposits that commercial banks must maintain as reserves, either in cash or in central bank deposits.
The CBN’s Monetary Policy Committee (MPC) is working to reduce excessive liquidity in the banking system and control increasing inflation, which is why these seven banks’ CRRs have increased.
Zenith Bank announced N4.14 trillion mandatory reserve deposits with the central bank during the period under review, which is approximately 6% more than the N3.9 trillion reported in 2023 FY. Meanwhile, UBA announced N2.992 trillion mandatory deposits with CBN as of June 2024, which is 13% more than the N2.66 trillion reported in 2023 FY.
GTCO reported N1.78 trillion mandatory reserve deposits with the central bank as of June 2024, an increase of 8.3 percent from N1.65 trillion, while FBN Holdings announced N2.85 trillion mandatory reserve deposits with CBN as of June 30, 2024, approximately a 35 percent increase from N2.11 trillion.
“Total sterilised funds (SF) increased by 8.3 percent to N1.782 trillion in H1 2024 from N1.647 trillion in 2023 on the back of the increase in Naira deposits and the modification to CRR determinants by Bank of Ghana (BOG),” GTCO stated in a presentation to investors and analysts. “The Statutory Liquidity Ratio balances with CBN represented 99 percent of this sum, closing at N1.732 trillion and N50.6 billion, respectively.
As a result, the CRR ratio to Naira deposits closed at 43.3% in H1 2024 from 42.3% in 2023, 1.7% (170bps) below the CBN-recommended harmonised CRR of 45%, the bank stated.
Wema Bank announced N707.47 billion restricted deposit with CBN as of June 2024, approximately 41% more than the N503.3 billion reported in 2023FY; FCMB Group announced N974.62 billion as of June 2024, a significant increase of 25.5% from the N776.5 billion reported in 2023FY; and Fidelity Bank reported N982.56 billion mandatory deposit with CBN as of June 2024, nearly 4% more than the N945.04 billion reported in 2023FY.
Additionally, Stanbic IBTC announced N493.8 billion mandatory deposit with the apex bank as of June 2024, a 47 percent decrease from N928 billion reported in 2023FY, and Sterling Financial announced N578.95 billion mandatory deposit with CBN as of June 2024, a roughly 29 percent increase from N447.7 billion reported in 2023.
In a clear sign of the apex bank’s resolve to absorb excess liquidity from the banking industry, the committee increased the Cash Reserve Ratio (CRR) to 50% at its most recent MPC meeting from 32.5% when it ended last year.
Additionally, indicating a continuation of its tightening cycle, the Monetary Policy Rate (MPR), or interest rate, was hiked by 850 basis points this year to 27.25 percent from 18.75 percent when it closed in 2023.
The CBN governor, Mr. Yemi Cardoso, increased the CRR for merchant banks by 200 basis points to 16 percent from 14 percent and for deposit money banks (DMBs) by 500 basis points to 50 percent from 45 percent at the most recent MPC meeting.
Cardoso has made extensive use of the CRR since assuming office in order to control liquidity, increase reserves, and reduce inflationary pressures.
Under the previous administration, the CRR was first raised to 32.5% from 27.5% in September 2022.
The CRR was not, however, significantly increased to 45% until Cardoso’s first MPC meeting in February 2024. Subsequent increases brought it to 50% in August 2024.
Additionally, the CRR for merchant banks was raised from 10% to 14% in the March 2024 MPC meeting.
The inflation rate and the erratic value of the naira on the foreign currency market are the two main issues that the CBN is addressing with its policies.
As of August 2024, structural inefficiencies, pressures from global prices, and fluctuating energy prices are the main causes of Nigeria’s inflation rate, which is still high at 32.15 percent.
Concerns regarding the effects of these drastic CRR increases have been raised by stakeholders. Banks are forced to lock half of their customer deposits at the CBN, where they do not receive interest, since the CRR is now 50%.
Nevertheless, they nevertheless pay interest on all of the deposits they get.
Boniface Okezie, the chairman of the Progressive Shareholders Association of Nigeria (PSAN), told THISDAY that shareholders have been urging the CBN to pay interest on the limited deposits held by these banks, highlighting the detrimental effect on a healthy dividend payout.
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