CBN Cash Reserve Ratio To Shrink Banks’ Profitability

Financial experts and bankers in the country have described the forceful implementation of Cash Reserve Ratio (CRR) by the Central Bank of Nigeria (CBN) as one that will leave the banks cash-strapped and unable to pursue vari¬ous profitable ventures.

The apex bank last week debited twenty-five banks, including mer¬chant banks, to the tune of N459.7 billion for failure to meet their CRR obligations.

This follows a similar move in April when the regulator took N1.47 trillion from almost 30 lenders for falling short of cash-reserve and loan-to-deposit ratios.


The CBN, in January, increased the cash-reserve requirement to 27.5 percent from 22.5 percent to curtail excess liquidity in the bank¬ing sector which, it said, could stoke inflation.

Last year, it boosted the loan-to-deposit ratio by 65 percent in a bid to accelerate lending. Some analysts have said these are contradictory policies that are almost impos¬sible to meet.

What this means is that Ni¬gerian banks are required to keep 27.5 percent of their de¬posits as CRR with the CBN.

The decision and similar policies by the CBN, according to analysts and bankers who spoke with Daily Independent, are killing the banking busi¬ness as it has left many banks unable to take decisions that will make them more profit¬able.


A top banker with a first generation bank, who prefers anonymity, said the decision of the CBN to debit the ac¬count of his bank and others in implementing the CRR pol¬icy was to prevent banks from doing business with deposits from customers.

“What we’ve seen in recent times is that the CBN just in¬discriminately debits banks, usually towards the tail-end of every week. They will look at your bank account and if your liquidity is plenty, they will debit you.

Source: Independent