THE Central Bank of Nigeria (CBN) has been holding on to N900 billion of lenders’ deposits as Cash Reserve Ration (CRR) since January.
By the CRR policy, banks have a mandate to keep 27.5 per cent of all deposits with the CBN.
The CRR is a portion of bank’s deposit kept with the CBN for liquidity control.
Fitch Ratings has predicted a 20 per cent hit in Nigerian 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,” said Nkemdilim Nwadialor at Tellimer Capital.
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.
Senior Director EMEA bank ratings at Fitch, said 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.
Nwadialor said a “significant pick-up” is expected of non-performing loan ratios from 6.6 per cent in the first quarter to an average of 10 per cent for the full year – almost double the central bank’s benchmark.
Some banks have already announced plans to tackle this. Mid-tier lender FCMB plans to complete a restructuring of half its loan book at the end of April.
Moody’s warned in a note that dollar shortages would intensify over the next 12-18 months – a period when 49 per cent of banks’ $7 billion foreign-currency borrowing matures, leaving them vulnerable.
Yields on dollar bonds issued by Nigerian banks – a proxy for borrowing costs – have retreated from the peaks scaled in the midst of the oil and Coronavirus rout.
Yet for lenders such as Zenith Bank, Fidelity Bank or Access Bank, the yields are still at least double the level from mid-March.
