Shareholders decry effect of Cash Reserve Ratio on banks

Shareholders under the aegis of Independence Shareholders Association of Nigeria (ISAN) have expressed displeasure at high Cash Reserve Ratio (CRR) and likely erosion of bank’s revenue.

With over N12 trillion restricted deposit with the Central Bank of Nigeria (CBN), the shareholders urged the apex bank to reduce the CRR drastically or pay interest on idle funds.

At a press conference in Lagos at the weekend, the founder of ISAN, Sunny Nwosu, said the decision by the apex bank to review most bank charges downward, coupled with the hike in the CRR amid headwinds constitute a setback in the sector.

The CRR rule empowers the Central Bank to hold up to 27.5 per cent of customer deposits held by commercial banks, restricting the banks from accessing the money.

“The apex bank since 2019, debited banks a chunk of their deposits in the form of CRR. It is noteworthy that Nigeria has the highest reserve requirement in sub-Saharan Africa. South Africa, Kenya and Ghana all have CRR’s of below 10 per cent. We believe the elevated CRR level moderated the industry’s performance and liquidity position during the year under review,” Nwosu said.

The CBN Governor, Godwin Emefiele, admitted the decision was part of efforts to curb excess liquidity in the banking system and check inflationary pressure.

According to Nwosu, the tight monetary policies of the CBN have continued to pummel the banking sector with knock-on effects on the equities market.

He said: “After serious evaluation of the CRR and current AMCON scam, ISAN insists that CBN should pay interests to banks on restricted deposits to enhance banks’ obligation to the real sector.

In the alternative, the apex bank should reduce the CRR to 15 per cent to enable banks to declare meaningful dividends that will encourage domestic investments.

“We urge the CBN to seriously have a rethink on CRR and among other things to enhance the performance of the financial sector of the economy. The challenging character of the Nigerian economy makes it imperative for CBN to pay interest on restricted deposits.

“Banks restricted deposits with CBN are idle funds. We argue that if these funds are with banks, it will certainly enhance their earnings, loans to the real sector and returns for shareholders.”

The President of ISAN, Anthony Omojola, said the bank’s interim reports in 2021 showed poor revenues, following higher borrowing costs as CRR hike further complicates banks currency flow already hit by fallout from Covid-19 and the oil price shocks.

He pointed out that the CBN warehousing of about N1.2 trillion from the banking system since it raised the CRR by five percent to 27.5 percent coupled with the activities of the Asset Management Company of Nigeria (AMCON) calls for serious concerns by all stakeholders.

“The cumulative restricted deposits of banks so far as at 2020, if invested in treasury securities at five percent, would have added N482 billion to the Industry’s profit before taxation. The industry’s return on average equity (ROE) would have increased also by between 11percent and 31.6 percent as of December 2020,” he said.