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Fitch Ratings, global rating agency has said that commercial banks are facing tough times due to Cash Reserve Ratio Policy limiting their capacity to grant loans to customers.
The Central Bank of Nigeria (CBN) policy requires that CRR, which is 27.5 per cent of banks’ deposits kept with the apex bank at zero interest to curb the money supply and keep inflation in check. In a report, Fitch Ratings says banks are being punished at a time when most other countries are giving lenders extra leeway to fight the economic fallout of the coronavirus.
“The Central Bank of Nigeria has been highly interventionist,” Mahin Dissanayake, senior director for Europe, Middle East and Africa bank ratings at Fitch, said.
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 park 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.
That and other penalties push the effective hit on capital to between 40% and 50 per cent, Dissanayake said. “The CRR is unique and hugely punitive” because the cash could’ve been put to better use than lying idle with the central bank.
The rules “are aimed at two different monetary policies,” he said. “They are conflicting.”
Anya Duroha, the chief executive officer of Lagos-based Nova Merchant Bank Ltd., expressed some sympathy for the central bank, which he said was “trying to solve all kinds of problems in the economy.”
A spokesman for Nigeria’s central bank didn’t respond to a text message seeking comment that he requested.
Fitch revised its outlook for Nigerian banks to negative toward the end of last year as the economy started slowing and the central bank ramped up intervention.
