Shareholders Lament Loss of Profits as 10 Banks Declare N20.8 Trillion Mandatory Deposit with CBN
- From 2020 till date, many CBN MPC reviews have seen the Cash Reserve Ratio raised from 22.5% to 50%
- Shareholders have now cried out over the huge sums of money tied up in mandatory deposits and are demanding that the CBN pay interest
- They listed out several things that could have been done with the money to make interests and improve earnings
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Legit.ng journalist Ruth Okwumbu-Imafidon has over a decade of experience in business reporting across digital and mainstream media.
The Central Bank of Nigeria(CBN), last year, increased the Cash Reserve Ratio (CRR) for all banks, meaning that banks are now required to hold higher sums with the apex bank as mandatory deposits.
For Deposit Money Banks, the required ratio is 50%, while Merchant Banks have 16% CRR with the CBN.
Consequent upon this, 10 Deposit Money Banks have declared a combined mandatory reserve deposit of N20.8 trillion with the CBN, 41.6% higher than the N14.72 trillion deposit in 2023.
Source: Getty Images
An Analyst with Norrenberger, Mr Samuel Oyekanmi, told Legit.ng that the CRR is the percentage of deposits that banks are mandated to reserve with the CBN.
The CRR is used for policy measures to manage money supply, liquidity, and inflation levels in the economy as the apex bank sees fit.
Mr. Samuel Oyekanmi noted that the banks cannot access the money for their day-to-day operations or to give out loans and advances, and still cannot earn interest from the CBN on these monies.
“It is purely for policy measures. So, if the CBN decides (like it did in this case), that it wants to reduce the money in circulation to control inflation, it can increase the CRR so that more of the deposits are mandatorily reserved. On the other hand, it can reduce the CRR rate if it wants more money to be available in circulation.
“Last year, the CBN increased the CRR from 32.50% to 50%, but this was not the beginning. The increase starts from around 2020 when the CBN increased CRR from 22.5% to 27.5% to control inflation.”
He explained that this differs from the minimum capital requirements, which refer to the amount a bank must keep with the CBN as capital, to ensure financial stability and absorb potential losses.
Also, where banks can earn interest on their minimum capital, they earn zero interest on the mandatory deposits kept with the CBN.
On the issue of shareholders demanding interests, Oyekanmi said;
"Its fair argument but it defiles the essence of the CRR in itself, which is to manage the level of liquidity in the system, and is expected to not be used at all. The CBN is keeping the money away from the economy, which means the money is actually " idle" it can't generate interest."
10 banks declare N20.8 trillion mandatory deposit with CBN
Zenith Bank Plc had the highest with N5.3 trillion deposited with the CBN as mandatory deposit in 2024, ThisDay reports.
United Bank for Africa Plc has a N3.9 trillion with the apex bank as mandatory deposit for the period, while FBN Holdings declared N3.63 trillion as deposit.
GTCO declared N1.96 trillion as mandatory deposit for 2024, up from N1.65 trillion in 2023.
Ecobank Transnational Incorporated Plc, Stanbic IBTC Holdings Plc, Wema Bank Plc, FCMB Group Plc, Sterling Financial Holdings Company Plc, and Fidelity Bank Plc make up the remaining N6 trillion mandatory deposits.
Shareholders lament loss of profit
Justifying the raise, CBN Governor, Olayemi Cardoso, stated that it was part of fiscal measures to curtail excess liquidity and rising inflation.
However, this policy has drawn complaints from the bank shareholders due to the loss of potential profits on these huge deposits that are tied down and not available for operations.
An anonymous source in one of the Tier-2 banks told ThisDay that increasing CRR to 50% placed the banks under a lot of pressure, since they only have half their deposits to use for business operations and earn interest.
Source: UGC
Chairman, Progressive Shareholders Association of Nigeria (PSAN), Mr. Boniface Okezie, stated that while shareholders are not against the CBN policies, they have been advocating for the CBN to pay interest on the money.
Okezie explained that if the banks had the money available for operations, they could improve their earnings, and shareholders would get more returns.
He argued that the CBN could pay interest on the deposits, even if it was as low as 3%. This would give banks more money to drive the real sector of Nigeria’s economy.
CBN retains Interest rates, CRR, others
In related news, the Central Bank of Nigeria's Monetary Policy Committee (MPC) retained its benchmark interest rate, known as the Policy Rate (MPR), at 27.5%.
The bank also retained other metrics like the Cash Reserve Ratio of Deposit Money Banks at 50.00% and Merchant Banks at 16.00%.
CBN's decision to hold the rate follows the rebased consumer price index (CPI) released by the National Bureau of Statistics (NBS).
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Source: Legit.ng
