Nine Nigerian banks’ cash reserves have surged to N15.5 trillion in the half year ended June 2024, This represents a substantial increase of nearly 11.4 per cent from N13.9 trillion reported in the 2023 financial year, as the Central Bank of Nigeria (CBN) sustained its aggressive monetary tightening.
The banks are Zenith Bank Plc, Guaranty Trust Holding Company Plc (GTCO), FBN Holdings Plc, United Bank for Africa Plc (UBA), Fidelity Bank Plc, FCMB Group Plc, Wema Bank Plc, Sterling Financial Holdings Company Plc, and Stanbic IBTC Holding Plc.
Cash Reserve Ratio (CRR) is a specified minimum fraction of the total deposits of customers, which commercial banks have to hold as reserves either in cash or as deposits with the central bank.
The jump in CRR of these seven banks comes in response to the CBN’s Monetary Policy Committee’s (MPC) efforts to contain rising inflation and curtail excessive liquidity in the financial system.
In the period under review, Zenith Bank declared N4.14 trillion mandatory reserve deposits with the central bank (about six per cent increase from N3.9trillion reported in 2023FY), while UBA announced N2.992 trillion mandatory deposit with CBN as of June 2024, a growth of 13 per cent from N2.66trillion reported in 2023 FY.
On its part, FBN Holdings announced N2.85 trillion mandatory reserve deposits with CBN as of June 30, 2024, about a 35 per cent increase from N2.11 trillion, while GTCO reported N1.78 trillion mandatory reserve deposits with the central bank as of June 2024, an increase of 8.3 per cent from N1.65 trillion.
GTCO, in a presentation to investors and analysts, said, “On the back of the increase in Naira deposits and modification to CRR determinants by the Bank of Ghana (BOG), total sterilised funds (SF) grew by 8.3 percent to N1.782 trillion in H1 2024 from N1.647 trillion in 2023. CRR and the Statutory Liquidity Ratio balances with CBN represented 99 percent of this sum, closing at N1.732 trillion and N50.6 billion, respectively.
“Consequently, the CRR ratio to Naira deposits closed at 43.3 percent in H1 2024 from 42 percent in 2023, a 1.7 percent (170 bps) shy of the harmonised CRR of 45 percent advised by the CBN,” the bank said.
FCMB Group announced N974.62 billion as of June 2024, a significant increase of 25.5 percent from the N776.5 billion reported in 2023 FY; Fidelity Bank reported N982.56 billion mandatory deposit with CBN as of June 2024, nearly four percent higher than the N945.04 billion reported in 2023 FY; and Wema Bank revealed N707.47 billion restricted deposit with CBN as of June 2024, about 41 percent increase from the N503.3 billion reported in 2023 FY.
In addition, Sterling Financial announced a N578.95 billion mandatory deposit with CBN as of June 2024, about a 29 percent increase from the N447.7 billion reported in 2023, and Stanbic IBTC also announced a N493.8 billion mandatory deposit with the apex bank as of June 2024, a decline of 47 percent from the N928 billion reported in 2023 FY.
At its most recent MPC meeting, the committee raised the Cash Reserve Ratio (CRR) to 50 percent from 32.5 percent it closed last year, a clear indication of the apex bank’s determination to mop up excess liquidity from the banking sector.
Also, the Monetary Policy Rate (MPR), or interest rate, was raised by 850 basis points this year to 27.25 percent from 18.75 percent it closed in 2023, signalling a continuation of its tightening cycle.
At the last MPC meeting, the governor of CBN, Mr. Yemi Cardoso, raised the CRR for deposit money banks (DMBs) by 500 basis points to 50 percent from 45 percent and for merchant banks by 200 basis points to 16 percent from 14 percent.
Since taking office, Cardoso has relied heavily on the CRR to manage liquidity, drive up reserves, and temper inflationary pressures.
The CRR, which stood at 27.5 percent in September 2022, was first increased to 32.5 percent under the previous leadership.
However, it wasn’t until Cardoso’s first MPC meeting in February 2024 that the CRR was sharply raised to 45 percent, with further increments pushing it to 50 percent in August 2024.
In addition, the March 2024 MPC meeting saw an increase in the CRR for merchant banks, from 10 percent to 14 percent.
The CBN’s policies come in response to the twin challenges of the inflation rate and unstable naira at the foreign exchange market.
Nigeria’s inflation rate remains persistently high at 32.15 percent as of August 2024, driven by structural inefficiencies, global price pressures, and volatile energy costs.
Stakeholders have voiced concerns over the impact of these aggressive CRR hikes. With the CRR now at 50 percent, banks are compelled to lock half of their customer deposits at the CBN, where they earn no interest.
Yet, they continue to pay interest on the full 100 percent of deposits they receive.
Speaking with THISDAY, the Chairman of the Progressive Shareholders Association of Nigeria (PSAN), Boniface Okezie, said that shareholders have been calling on the CBN to pay interest on these banks’ restricted deposits, stressing the negative impact on robust dividend payout.
