BY:Moses olajuwon Obajemu
Fitch Ratings has sounded the alarm that the cash reserve ratio (CRR) policy being implemented by the Central Bank of Nigeria (CBN) will undermine the ability of banks to deliver maximum returns to their shareholders as well as affect lending to their customers.
The CRR is 27.5 per cent of banks’ deposits kept with the apex bank at zero interest to curb the money supply and check inflation.
In a report, it says banks are being punished at a time some countries are giving lenders a leeway to tacckle the economic fallout of the coronavirus.
“The Central Bank of Nigeria has been highly interventionist,”Mahin Dissanayake, senior director for Europe, Middle East and Africa bank ratings at Fitch, said.
Where peers like South Africa and Kenya followed the global trend of giving banks more room to lend, Nigeria hasn’t budged. Instead, it stuck with a CRR that compels lenders to park keep a portion of their deposits with the regulator.
Failure to meet the threshold results in the regulator debiting banks’accounts with the shortfall. The central bank also dips into the accounts when lenders fail to extend 65 per cent of their deposits as loans, a measure that was introduced to stimulate credit.
These and other penalties push the effective hit on capital to between 40 per cent and 50 per cent, Dissanayake said.
“The CRR is unique and hugely punitive” because the cash could’ve been put to better use than lying idle with the central bank.
The rules “are aimed at two different monetary policies. They are conflicting”.
The Chief Executive, Nova Merchant Bank, expressed some sympathy for the central bank, which he said was “trying to solve all kinds of problems in the economy”.
Fitch revised its outlook for banks to negative toward the end of last year as the economy started slowing and the central bank ramped up intervention.
“Nigerian banks compared to other markets operate in a volatile environment,” Dissanayake said: adding: “The banks have to deal with economic shocks, short credit cycles and persistent problems in the oil sector. They also have to deal with policy actions, policy uncertainty and regulatory risks.”
