Shareholders under the aegis of the Independent Shareholders Association of Nigeria (ISAN) over the weekend called on the Central Bank of Nigeria (CBN) to explore either lowering the Cash Reserve Ratio (CRR) to roughly 15% or paying 3% interest on restricted bank deposits.
The shareholders, who expressed concern about the CRR bottleneck imposed on banks, insisted that the payment would strengthen banks’ obligations to the real sector, noting that the recent increase in CRR from 22.5 percent to 27.5 percent had not yielded the desired economic results after the first phase of Covid-19.
Sir Sunny Nwosu, ISAN’s National Leader Emeritus, told newsmen in Lagos that ISAN is concerned about the status of commercial banks and the safety of local portfolio investors’ investments as a result of the CBN’s recurrent fleecing of the banking industry.
According to him, the CBN CRR, which was designed to supplement the Open Market Operation (OMO) in managing excess liquidity in the banking sector in recent years, has failed to achieve its goals.
He said, “After serious evaluation of the CRR and current AMCON scam, ISAN insist that CBN should pay interest to banks on restricted deposits to enhance banks obligation to the real sector. In the alternative the apex bank should reduce the CRR to 15 per cent to enable banks declare meaningful dividends that will encourage domestic investments.
“We urge CBN to seriously have a rethink on CRR and among other things to enhance the performance of the financial sector of the economy. The challenge character of Nigerian economy makes it imperative for CBN to pay interest on restricted deposits.
“ISAN noted that the continuous debit of banks under CRR by CBN is putting the banking sector under serious threat and a compelling impotency toward sustainable intervention in the real sector.
“Banks restricted deposits with CBN are idle funds. We argue that if these funds are with banks, certainly it will enhance their earnings, loans to real sector and returns for shareholders.
“If CBN can pay at least three per cent interest on the mandatory CRR deposits, it will go a long way in driving the real sector and the payment of robust dividends to shareholders,” ISAN argued.
He continued, “As concerned shareholders, we urged the CBN to revalue CRR effects on the economy within the earlier failed desire of the monetary ratio,” adding that “frequent debiting of banks has had no known impact in curbing speculation against the Naira and noticeable foreign exchange shortages.”
Nwosu noted that given the dire need to stimulate the economy after the international and national adversities created by Covid-19 pandemic, the industry’s restricted cash reserves exceeded N9.5 trillion in 2020 and translated to an effective CRR of 37 per cent.
“That as Nigeria garner reputation as the country with the highest reserve requirement in sub-Saharan Africa, we consider the sterile new CRR policy unproductive and an elitist tool to keep most Nigerians, particularly retail investors down.
“That the cumulative restricted deposits of banks so far as at 2020, if invested in treasury securities at five percent, would have N482 billion added to the Industry’s profit before taxation. The industry’s return on average equity (ROE) would have increased by between 11percent and 31.6 percent as at December 2020.
“That as portfolio investors’, most senior citizens who took to portfolio investment are compelled to endure the effects of poor monetary policy instrument.
“That CBN has been highly interventionist compared with its peers like South Africa and Kenya that toed global trend of giving banks more room to lend. Sticking with a CRR that compels lenders to park, the additional five percent CRR increase amounts to N1.2 trillion warehoused by government.
Also speaking, National Coordinator, ISAN, Mr. Anthony Omojola, said banks’ interim reports in 2021 showed poor revenues following higher borrowing costs as CRR hike further complicated banks’ currency flow already hit by fallout from the COVID-19 pandemic and the oil price shocks.
Mr. Anthony Omojola, ISAN’s National Coordinator, noted that banks’ interim reports for 2021 revealed weak revenues due to higher borrowing rates, as the CRR hike further impacted banks’ cash flow, which had already been affected by the COVID-19 epidemic and oil price shocks.
Available data showed that 10 banks were cumulatively debited N4.95 trillion and N7.78 trillion respectively in CRR between 2019 and 2020 alone.