Shareholders Demand Cutback On CRR, Rap Effect On Banks’ Earnings

BY CHINYERE OBIORA, LAGOS – Shareholders on the platform of Independence Shareholders Association of Nigeria (ISAN) are unhappy with the hike in mandatory Cash Reserve Ratio (CRR) of Deposit Money Banks (DMBs), insisting the development is currently causing a setback in the nation’s banking sector

Consequently, they have urged the Central Bank of Nigeria (CBN) to lower CRR to 15 per cent from the current 27.5 per cent or pay interest on the restricted deposits to the DMBs.

According to ISAN, its position is strengthened by the fact that the banks currently have over N12 trillion restricted deposits with the apex Bank.

In a statement issued in Lagos on Sunday, ISAN’s founder, Mr Sunny Nwosu, said the CBN’s decision to review downwards most bank charges and fees, coupled with the hike in the CRR, was already causing hiccups in the sector.

Nwosu, who noted that the happenings were amid expectations of increasing regulatory headwinds in the monetary sector, said; “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 further said the tight monetary policy, which the CBN Governor, Mr Godwin Emefiele, described as meant to address excess liquidity in the banking system and already deemed as aiding the resurging inflation trend, has continued to pummel the banking sector with a multiplier effect on the equities market and loss of value addition to shareholders.

The ISAN leading voice also said: “After serious evaluation of the CRR and current AMCON scam, ISAN insists that CBN should pay interest 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 so that banks can declare meaningful dividends that would encourage domestic investments. We urge CBN to have a rethink on CRR and among other things to enhance the performance of the financial sector of the economy.”

For Nwosu, the Nigerian economic challenges have made it imperative for CBN to pay interest on restricted deposits, adding; “Banks restricted deposits with CBN are idle funds. We argue that if these funds are with banks, certainly it will enhance their earnings, loans to the real sector, and returns for shareholders.”

In addition, the ISAN said continued debits of CRR by CBN have put the banking sector under serious threat, and the apex bank was denying banks the ability to earn an income in customer deposits.

In his intervention, the National Coordinator of ISAN, Mr Anthony Omojola, said banks’ interim reports in 2021 showed poor revenues due to higher borrowing costs as CRR hike further complicated banks’ currency flow already hit by fallout from the COVID-19 pandemic and the oil price shocks.

He said the apex bank warehousing of about N1.2 trillion from the banking system since it raised the CRR by five per cent to 27.5 per cent in addition to AMCON’s sinking funds are issues of serious concern for all stakeholders.

Omojola said; “That the cumulative restricted deposits of banks so far as at 2020, if invested in treasury securities at five per cent, would have N482 billion added to the industry’s profit before taxation.

“The industry’s return on average equity (ROE) would have increased by between 11percent and 31.6 percent as of December 2020.”

CRR is a monetary policy tool deployed by CBN to control the money supply in the economy with accompanying powers to attach up 27.5 per cent of customer deposits held by commercial banks, effectively restricting them from accessing the money.

The apex bank debited a chunk of deposits of banks since 2019 as part of a mutually inclusive CRR and Loan to Deposit Ratio policy that targeted at driving lending more to the private sector.

ISAN was formally inaugurated in 1998 with ten (10) foundation members led by Sir Sunday Nnamdi Nwosu (KSS). Since then, the Association has grown in the last ten years to over ten thousand membership both within and outside Nigeria.