• Monday, July 22, 2024
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CRR policy pinches Nigeria’s biggest banks’ return to shareholders

Banks banned from reselling CBN dollars to each other

Nigeria’s biggest banks have seen their Return on Equity (ROE) decline in the last two years as a curious Cash Reserve Ratio (CRR) policy continues to batter their performance.

A BusinessDay’s analysis of First Bank Holdings, United Bank for Africa, Guaranty Trust Bank, Access Bank and Zenith Bank shows that the lenders have seen their average ROE decline from 11 percent in the first half of 2020 to 9 percent in 2021.

Declining ROE signals that banks are generating less profit with the funds provided by shareholders.

ROE measures how the management of a company utilized the company’s assets to create wealth for shareholders. It is the amount of net income returned as a percentage of the shareholders’ equity.

“Banks have had to suffer severe liquidity constraints in 2021 as CBN’s mop-up activities via CRR debits have weighed on financial system liquidity,” a research analyst at United Capital, Ayorinde Akinloye, said.

The decline began in 2020 when the CBN increased the CRR from 22.5 percent to 27.5 percent in January 2020.

CRR is a specified minimum fraction of the total deposits of customers, which commercial banks have to hold as reserves either in cash or as deposits with the CBN. The higher the CRR, the lower the liquidity with the banks and vice-versa.

The CBN cited the need to control inflation and grow the economy as the reason for raising the CRR.

Read Also: Five takeaways from Nigeria’s biggest banks’ half-year results

Over the years, Nigerian banks have had to contend with rising inflation, low Gross Domestic Product (GDP) growth, currency depreciation and other macroeconomic pressures.

These vulnerabilities were further compounded by the COVID-19 pandemic of 2020 and have made the banks more cautious with their funds.

At 27.5 percent, Nigeria has the highest reserve requirement in sub-Saharan Africa, while peers such as South Africa, Kenya and Ghana all have CRRs of below 10 percent.

The CBN has also increased the minimum loan-to-deposit ratio (LDR) of commercial banks to 65 percent, up from the 60 percent in 2019. The CBN has debited banks a huge chunk of their deposit in an attempt to drive lending to the private sector.

Analysts at Agusto & Co in its latest report say banks are facing tough times due to the CRR policy limiting their capacity to grant loans to customers.

“Assuming the sterile CRR were invested in treasury securities at 5 percent, N482 billion would have been added to the industry’s profit before taxation. This would have increased the industry’s return on average equity (ROE) by 11 percent to 31.6 percent in the financial year ended 31 December 2020.”

Banks are also yet to fully recover from the low-interest rate environment experienced last year and this also affected their performance.

“The declining ROE can also be attributed to the low interest rate environment experienced in 2020. Banks invest based on maturing funds and although interest rate has risen compared to last year, it might not be till Q3 till banks see the impact,” Gbolahan Ologunro, an economist at Lagos-based Cordros, says.

Zenith Bank, GTBank and First Bank saw their interest income decline 6 percent, 18 percent and 22 percent, respectively. However, Access Bank and UBA grew their interest income by 32 percent and 8 percent, respectively, in the first half of 2021.

Access Bank

Access Bank recorded the highest ROE relative to other tier-one banks. The bank recorded an ROE of 11 percent in H1 2021, which implies that for every unit the shareholders’ equity held, 11 kobo was generated as profit.

Access made a profit of N86.9 billion, a 42 percent increase compared with N61 billion in the first half of 2020. The bank’s shareholder’s equity stood at N775 billion in H1 2021.

Its interest income grew 32 percent to N279 billion compared with N211.9 billion in the periods under review. Access share price closed at 4.07 percent higher at N8.95, Friday.


Guaranty Trust Bank has the second-highest ROE compared with other banks with 10 percent. However, this is a decline from 17 percent and 13 percent recorded in the first half of 2019 and 2020, respectively.

During the periods, profit declined 16 percent to N79 billion from N94.2 billion. Interest income also fell 18 percent to N126 billion in H1 2021 compared with N153 billion in H1 2020.

The bank’s shareholders’ equity stood at N780 billion in the period compared with N706 billion in the first half of 2020. GTBank’s share closed 1.28 percent higher at N27.75 on Friday.

Zenith Bank

Zenith Bank recorded a ROE of 9 percent in the first half of 2021, this means a profit of 9 kobo for every unit of shareholders’ equity held by the bank during the period. This is a decline from 11 percent in H1 2019 and 9 percent in H1 2020.

The bank made a profit of N106 billion in H1 2021 compared with N103 billion recorded in H1 2020. Interest income declined 6 percent to N203.9 billion compared with N216 billion in the previous year.

Shareholder’s equity stood at N1.1 trillion in the first half of 201 compared with N988 billion a year before. Zenith share price closed 2.84 percent higher at N23.50 on Friday


United Bank for Africa pls recorded a ROE of 8 percent in H1 2021, which suggests each shareholder’s equity within the bank generated 8 kobo as profit.

UBA recorded a profit of N60.5 billion compared with N44.4 billion the previous year. The bank’s interest income grew 8 percent to N222 billion from N205 billion in the same period of 2020.

Shareholders’ equity stood at N752 billion compared with N634 billion in H1 2020.

UBA’s share price closed at 0.67 percent higher at N7.50, Friday.

First Bank of Nigeria

First Bank Holdings recorded the lowest ROE among its peers, at 5 percent in the first half of 2021. This means that for every unit of shareholder’s equity the bank held, 5 kobo was generated as profit in the period. The lender had a ROE of 7 percent and 6 percent in 2020 and 2019, respectively.

The bank’s profit declined 23 percent to N38 billion in H1 2021 compared with N49.4 billion in the same time last year. Shareholders’ equity stood at N772 billion in the period.

Interest income declined 22 percent to N161 billion compared with N207 billion in 2020. First Bank’s share price remained flat at N7.50, Friday.