Banks’ revenue to dip 20%
The Central Bank of Nigeria (CBN) has debited the accounts of 23 deposit money banks with N349.72 billion over Cash Reserve Ratio (CRR) breaches.
The debits are the latest in the regulator’s CRR debits meant to get the banks to lend to real sector operators.
The debits are also part of the apex bank’s move to mop up liquidity as inflation uptick persists.
The CRR debit for last month stood at N226 billion.
The CRR is an important monetary policy tool used by the CBN to regulate the economy.
It is pertinent because, among others, it helps the apex financial institution to redirect focus to other strategic sectors of the economy such as the real sector, a goal that aligns with that of the central bank.
The CRR is also an important tool in managing the country’s foreign exchange liquidity since the whittling down of CBN’s OMO borrowing.
By the CRR policy, banks have a mandate to keep 27.5 per cent of deposits with the CBN.
Fitch Ratings predicted a 20 per cent hit in the banks’ revenue this year due to the CRR policy and foreign exchange shortage.
It said Nigeria’s banks would face rising borrowing costs as the CBN’s measures to support naira squeeze lenders, who already hit by COVID-19 pandemic and oil price shocks.
Some banks have already indicated they expect a hit. In April, mid-tier lender Fidelity Bank warned that 2020 profits would drop by 15 per cent.
Bankers said lenders were relying on existing customers to weather the storm as new lending looked risky with the economy expected to tip back into recession.
“General sentiment in the market is that CRR debits are carried out quite close to Foreign exchange auctions to prevent the banks from presenting large ticket forex demands at auctions,” analysts said.
Those debits also hamper wider lending, going against Central Bank measures of lowering banks’ Loan-to-Deposit Ratios, she said. CBN data showed that credit to the private sector in April dropped by nearly two-thirds from end-2019.
Banks are dealing with slow growth, fall in lending, a lack of forex in the market and asset quality issues, saying he expected banks’ revenues to drop at least 20 per cent this year, though he did not expect any to make a loss.
Fitch predicts impaired loan ratios will rise sharply in 2020 with Nigerian banks the most exposed to stress in the oil sector compared to their peers in emerging markets elsewhere.
