New Telegraph

Fitch: CRR debits, others’ll hit banks’ earnings

The Central Bank of Nigeria’s (CBN) Cash Reserve Ratio (CRR) policy and other such measures introduced by the apex bank will negatively impact lenders’ earnings, Bloomberg reported Fitch Ratings as saying yesterday. According to the rating agency, Nigeria stands out for punishing its banks at a time when most other countries are giving lenders extra leeway to fight the economic fallout of the coronavirus. Bloomberg quoted senior director for Europe, Middle East and Africa bank ratings at Fitch, Mahin Dissanayake, as saying that “the Central Bank of Nigeria has been highly interventionist.”

The news agency noted that where peers like South Africa and Kenya followed the global trend of giving banks more room to lend, Nigeria stuck with a CRR that compels lenders to park 27.5 per cent of their deposits with the central bank. “The CRR is unique and hugely punitive,” said Dissanayake. The regulation is aimed at reducing the amount of money in the financial system to keep inflation in check. Leaving cash idle in a non-interest bearing account pressures earnings, he said, because the cash could’ve been put to better use, like lending.

Failure to meet the threshold results in the regulator debiting banks’ accounts with the shortfall. The central bank also dips into the accounts when banks miss a target to extend 65 per cent of their deposits as loans, a measure aimed at stimulating credit.

This and other penalties push the effective hit on capital to between 40 per cent and 50 per cent, Dissanayake said. The rules “are aimed at two different monetary policies,” he said. 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. “Nigerian banks compared to other markets operate in a volatile environment.

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