Banks with more naira deposit to benefit from CRR ease

Banks with more naira than foreign exchange deposits are expected to be proportionately bigger beneficiaries from the recent Cash Reserve Requirement (CRR) ease by the Monetary Policy Committee (MPC).

The banks, according Renaissance Capital, include Fidelity Bank, Diamond Bank, FBN Holdings and Skye Bank which rank tops, but FCMB, Zenith and GTBank are not that far behind.

The MPC last week reduced CRR from 31 percent to 25 percent. CRR is the minimum fraction of the total deposits of customers which banks have to hold as reserves either in cash or as deposits with the Central Bank of Nigeria (CBN).

With the reduction of CRR, analysts project that the impact of the Treasury Single Account (TSA) policy will not be too heavy on the banks.

The TSA is a unified structure of government bank accounts that gives a consolidated view of government cash resources. In other words, it is a system whereby all monies belonging to the government are domiciled in one account with the CBN, with payouts from, and collections into, the account done via an electronic payment platform.

The TSA policy is expected to impact negatively on both the liquidity and soundness of the banks and the entire financial system as there will be less loanable funds in the banking system and, as such, interest rates which are already high will worsen.   

“We think the CBN has simply restored system liquidity levels to where they were pre Treasury Single Account (TSA) debits, by releasing to the banks the naira equivalent of what moved to the TSA (Naira + FX),” said Adesoji Solanke, sub-Saharan Africa banking analyst, head of research, Nigeria, Rencap.

“This is positive for the banks because there were significantly more FX TSA debits than naira last week; which implies that more naira-earning assets should be supportive of asset yields near term,” he said.

However, a core reason attributed to the CRR ease was the MPC’s desire to see the banks invest more in critical sectors such as agriculture and mining, to help drive growth and reduce unemployment. But analysts at Rencap do not see this happening near term and think that the decision is likely to put downward pressure on treasury yields as banks aggressively invest the released CRR in T-Bills and bonds.

Godwin Emefiele, CBN governor, has charged banks to invest in critical sectors, such as agriculture and manufacturing, for the much-needed growth.

During the meeting, the MPC advised on the urgent imperative of banks to aggressively support the efforts of government at job creation by channelling available liquidity into target growth-enhancing sectors of the economy such as agriculture and manufacturing, with a view to promoting employment creation through conscious efforts aimed at directing lending to the growth enhancing sectors of the economy.

Consequently, the committee considered that the CBN and deposit money banks must strive to reverse the slowing GDP trajectory by actively stepping up their efforts in catalyzing the economy with substantial new loans to the target sectors earlier highlighted.

HOPE MOSES-ASHIKE