About 14 banks may have landed at the receiving end of
the Cash Reserve Requirement, CRR, harmonisation
policy announced last week by the Monetary Policy
Committee, MPC, of Central Bank of Nigeria,
CBN.
About nine banks are benefiting from the policy change.
CRR simply specifies the proportion of a bank’s deposit
that must be reserved, thus specifying the limit of cash
banks can lend out of its total deposits.
For this purpose banks’ deposits are divided into public
sector and private sector with 75 percent reserve
imposed on public sector deposits, while 20 percent was
imposed on private sector deposits up until last week.
However, MPC rose from its second quarter meeting
last Tuesday harmonising the two by crashing public
sector CRR to 31 percent, while hiking the private
sector CRR to same level.
Effectively the decision threw most banks that do not
have substantial public sector deposits into difficult
liquidity position, while also giving broader resources
to others with big public sector deposits.
Our investigations show that the five banks usually
categorised as systemically important banks, SBIs, in
addition to four others are the major beneficiaries of
the policy.
At the backdrop of deep concern about the state of the
global and domestic economy, lower level of external
reserves buffer, surging inflation and the fact that
monetary policy is gradually approaching the limits of
tightening, last week’s MPC had retained its policy
stance on MPR (13%), exchange rate and liquidity ratio
(30%), stating that additional tightening measures may
not be appropriate now to avoid overheating the
economy.
Banking industry analysts believed that in a bid to
check moral hazard by private market participants
given the current discriminatory CRR on public and
private sector deposits, MPC took the decision to
harmonise the CRR on public and private sector
deposits.
Moreover, CBN sources indicated that the committee
also envisaged that a relaxing effect of the
harmonisation would be a release of about N500 billion
hitherto reserved under the previous CRR for public
sector funds into the economy, which would have a
salutary effect in the macro-economy environment.
However, it was not clear if the apex bank took into
consideration the consequence of the harmonisation on
the health of the less-privileged banks as these banks
have become embattled with squeezing liquidity since
last week.
Experts’ views
Analysing the emerging scenario Afrinvest, a Lagos-
based investment bank outfit said: “Although we
initially considered MPC’s move to be strategic easing,
further examination of CBN’s data as at end-April
(2015), however, indicated that CRR consolidation to 31
percent actually lead to a net outflow of liquidity from
system with varying impact across banks.
“Banks with more exposure to public sector deposit may
benefit from CRR crediting, while banks over-
weighted on private sector deposit will face further
tightening pressure.
“While the MPC’s decision was borne out of the need
to engender overall stability of the banking system, with
reluctance for further tightening, the decision of the
monetary policy committee on CRR may have resulted
in an unintended tightening in our view.”
Reacting to the development, the Chief Executive of
Financial Market Dealers Association, the umbrella
body of banks’ chief financial strategists, Mr. Wale
Abe, told Vanguard that while the policy may have
some unintended outcome, the overall picture was
positive given that CBN has a broader view and more
information on the economy at large.
Out of the N500 billion expected to have been freed by
the new policy, the nine benefiting banks control over
N450 billion, while the remaining 14 banks share the
balance of less than N50 billion.
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