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25 banks’ profits drop by N482b as CBN restricts N9.5tr deposits

Twenty commercial banks and five merchant banks’ profits dropped by N482 billion in 12 months over N9.5 trillion cash restriction policy implemented by the Central Bank of Nigeria (CBN), the 2021 Banking Industry Report (BIR) has shown.

The funds were reserved by the CBN during the banks’ Financial Year 2020 in line with its Cash Reserve Requirement (CRR) policy.

The measures were meant to moderate inflation and maintain exchange rate stability.

The 2021 BIR released at the weekend by Agusto & Co. said the apex bank raised and standardised the CRR – a portion of banks’ deposits kept with the CBN at 27.5 per cent for both merchant and commercial banks.

The quarantined funds with the CBN at zero interest rate depleted banks’ profitability within the review period.

Speaking yesterday on the report, Head of Banking at Agusto & Co., Ayokunle Olubunmi, said analysis of the impact of the restricted funds on each bank’s profitability showed that Zenith Bank’s N1,370,619,000,000 was restricted within the 2020 financial year with  estimated N68,530,950,000 interest income forgone, assuming five per cent return when invested in Treasury Bills; Access Bank Plc, N1,275,279,265,000 (restricted), N63,763,963,000 (interest foregone); First Bank of Nigeria Limited, N1,230,974,871,000 (restricted), N61,548,744,000 (interest foregone); UBA Plc, N1,072,094,000,000 (restricted), N53,604,700,000 (interest foregone) and Guaranty Trust Bank Plc, N1,008,748,051,000 (restricted), N50,437,403,000 (interest foregone).

The list also include Fidelity Bank Plc, N540,129,000,000 (restricted), N27,006,450,000 (interest foregone); Ecobank Nigeria Plc, N406,043,000,000 (restricted), N20,302,150,000 (interest foregone); Standard Chartered Bank Nigeria Limited,  N362,542,981,000 (restricted), N18,127,149,000 (interest foregone); Union Bank of Nigeria Plc, N356,452,000,000 (restricted), N17,822,600,000 (interest foregone); Coronation Merchant Bank Limited, N72,327,019,000 (restricted), N3,616,351,000 (interest foregone); Globus Bank Limited, N25,999,790,000 (restricted), N1,299,990,000 (interest foregone), among others.

Olubunmi said the report was based on the review of the financial statements of 20 commercial banks and five merchant banks.

The report reviewed the industry structure, financial condition, the regulatory environment in addition to the macroeconomic environment and its impact on the banking industry.

“The standardised CRR was implemented alongside discretionary deductions. As at financial year end 2020, the industry’s restricted cash reserves exceeded N9.5 trillion and translated to an effective CRR of 37 per cent,” he said.

Accroding to Olubunmi, Nigeria has the highest cash 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. Assuming the sterile CRR were invested in treasury securities at five per cent, N482 billion would have been added to the Industry’s profit before taxation. This would have increased the Industry’s return on average equity (ROE) by 11 per cent to 31.6 per cent,” the rating agency’s Report affirmed.

According to the report, the COVID-19 pandemic brought about an extraordinary test for the global community. Although the global COVID mortality rate stands low at about 2.2 per cent, casualties increased from less than 3,000 in December 2019 to about 3.9 million as at 30 June 2021.

It said that COVID-19 pandemic brought about an extraordinary test for the global community. Although the global COVID mortality rate stands low at about 2.2 per cent, casualties increased from less than 3,000 in December 2019 to about 3.9 million as at 30 June 2021.

“Nigeria’s mortality rate stood comparably lower at about one per cent as at the same date. However, the local economy had its fair share of pandemic-related adversities. However, leveraging lessons from the 2016/2017 economic recession, the Nigerian banking industry was better prepared in 2020,” it said.

Agusto & Co. said proactive measures in the form of forbearance granted by the CBN, enabled banks to provide temporary and time-limited restructuring of facilities granted to households and businesses severely affected by COVID-19.

“There was generally a cautious approach to lending in the Industry, given difficulties in the operating environment. Although gross loans and advances grew by 12 per cent, loan growth was negative when the 19.3 per cent naira devaluation is considered. Underpinned by the forbearance and proactive measures adopted by banks, the non-performing loan ratio improved to 6.6 per cent as against 7.6 per cent in the preceding year,” it said.

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