Indications have emerged that the Cash Reserve Ratio, CRR, being implemented by the Central Bank of Nigeria, CBN, will affect banks’ returns and ability to lend to the real sector of the economy.
Fitch Ratings, an international rating agency, in its report said Nigerian banks are being punished at a time some countries are giving lenders a leeway to tackle the economic fallout of the coronavirus.
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.
Senior Director for Europe, Middle East and Africa bank ratings at Fitch, Mahin Dissanayake, said the Central Bank of Nigeria has been highly interventionist.
“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 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.
Chief Executive, Nova Merchant Bank, Anya Duroha, 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.