Central Bank of Nigeria Penalizes and Deducts N1.4 trillion from banks’ Cash Reserve Requirement (CRR)

Central Bank of Nigeria Penalizes and Deducts N1.4 trillion from banks’ Cash Reserve Requirement (CRR)

In the wake of the decision of Access Bank Nigeria plc to lay off 70% of its workforce, Banker’s Committee, along with the Central Bank of Nigeria (CBN), convened an emergency meeting on May 2nd, to deliberate on the capacity of the banking industry to cope with the negative impacts of COVID-19.

The communiqué of the meeting titled: CBN, Bankers’ Committee Suspend Lay-offs in Banks, signed by CBN’s Director, Corporation Communications, Isaac Okoroafor, gave hope of reinstatement to the laid off staff and a beacon of hope to all bankers in Nigeria. The communiqué said that no bank in Nigeria shall retrench or lay off any staff in the face of economic hardship posed by COVID-19.

“A special meeting of the Bankers’ Committee was convened on May 2, 2020, to further review the implications of COVID-19 pandemic on the Nigerian banking industry. The Committee particularly deliberated on the issue of the operating costs of banks in view of the disruptions emanating from the global economic difficulties and decided as follows:

“In order to help minimize and mitigate the negative impact of the COVID-19 pandemic on families and livelihoods, no bank in Nigeria shall retrench or lay-off any staff of any cadre (including full-time and part-time.)

“To give effect to the above measure, the express approval of the Central Bank of Nigeria shall be required in the event that it becomes absolutely necessary to lay-off any such staff.

The Central bank of Nigeria solicits the support of all in our collective effort to weather through the economic challenges occasioned by the COVID-19 pandemic,” the communiqué said.

The Access Bank’ decision to lay-off 75% of its staff has been criticized, with many calling it premature and insensitive, especially when the bank has just made a donation of N1 billion to the federal government as part of its assistance to the fight against coronavirus.

The development which threw the affected staff into panic drew the attention of stakeholders in the financial sector, especially the Apex bank. Sahara Reporters reported on Saturday that a cashier of Access Bank collapsed upon hearing the news of her lay-off.

The CBN and Banker’s Committee intervention appears to have drawn the line in what would have become a precedent for other banks. The Apex Bank has promised to roll out measures to protect jobs in the financial sector as part of the government’s commitment to mitigate the impact of the pandemic.

Meanwhile, the CBN has deducted N1.4 trillion from the banking sector’s Cash Reserve Requirement (CRR) being a penalty for all Nigerian Deposit Money Banks, DMBs’ failure to meet the 65% Loan-to-Deposit Ratio (LDR) for the month of March 2020.

The CRR is the amount in percentage that DMBs must keep with the central bank. Though it is a standing procedure of liquidity management by the CBN, as the excess liquidity in the banking sector stood above N1 trillion, analysts consider the withdrawn amount exorbitant, especially in the face of COVID-19 economic crisis that is threatening the existence of many businesses.

Some believe that it contributed to the decision of the Access Bank to lay off 75% of its workforce, and could further put banks under pressure to clamp down on their debtors as they are counting mainly on the interest to replenish the CBN’s deduction.

Access Bank parted with N41.billion to fall in line with other big names in the banking industry that received a large share of the deduction. Others are: Zenith Bank plc, N355.9 billion; First Bank of Nigeria, N206.1 billion; United Bank for Africa (UBA), N204.7 billion, GTBank N65.6 billion.

Stanbic IBTC also was debited N143.9 billion; Standard Chartered, N120.6 billion; Union Bank, N49.8 billion; Ecobank, N43.05 billion; Fidelity Bank, N32.1 billion etc.

Experts believe that a lot of factors may have contributed to CBN’s decision to make the deduction from banks but excess cash liquidity is at the center of it. Foreign Portfolio Investors (FPIs) who liquidated their naira investment found it hard to get out due to lack of liquidity in the Investors and Exporters’ (I&E) forex window.

BusinessDay reported Omotala Abimbola, a macro and fixed income analyst at Lagos-based Chapel Hill Denham, saying that the debit wasn’t unexpected due to the high level of excess liquidity in the banking sector. He added that there is a possibility that the CBN would return the money.

“So I guess that is why the CBN decided to take a decision to take away that liquidity in form of CRR debit to reduce the level of demand for Fx … there is a chance that the CBN may try to return the money debited from the banks because when people try to exit the market, they would need to exchange their naira for the dollar. But for the banking sector, it will be a very challenging year for them,” he said.

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3 thoughts on “Central Bank of Nigeria Penalizes and Deducts N1.4 trillion from banks’ Cash Reserve Requirement (CRR)

  1. The CBN is just saving money for the banks, that’s the simplest way to understand it, they are all in the same boat, so they will be fine.

    If the argument of ‘not lending enough’ is credible, then the CBN after withdrawal can as well ask all businesses that need loans to apply directly to CBN. Yet they want us to believe that they are really fighting for SMEs? The day we learn to critically question decisions here, we will begin unmask the shenanigans going on in many places.

    You need a loan for business, you go to bank, the bank makes it virtually impossible for you to obtain the loan, because of their ridiculous conditions, and we are here talking? From politics to corporates, we just have bunch of dishonest people all over the place. We know that the guidelines we give people are largely unattainable, yet we keep doing it, and still claim to want people empowered.

    God is watching…

    1. There is only victim in this tragedy, the Bank Customer and the Tax Payer, when would Nigerians stop playing the victim and demand accountability from CBN? The Banks are set up to make profit and are not developmental institutions, if there are in profit they would employ more staff and open more branches…..Access Bank cannot and should not be the villain in this story

  2. Nigeria banking system is still growing. Although it beats many systems in other countries in terms of security and coverage, many things need to be critically analyzed.
    Now, who benefits from these deductions/penalty by CBN? A common man? SME’s? I don’t think any.
    Complete database Wil go a long way to enhance many things in this country, loans, businesses, elections and so on. Till then, we keep doing trial and error


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