On Friday, Zenith Bank Plc suffered a loss of N170 billion as the Central Bank of Nigeria, CBN, debited 14 banks N356.1 billion for failing to meet its Cash Reserve Requirement (CRR) of 27.5%.

The cash reserve ratio was increased from 22.5% to 27.5% in January 2020 by the apex bank in a bid to combat currency-induced inflation and maintain the benefits of its 65% policy loan deposit rate (LDR).

king of investors reports that Nigeria has the highest reserve requirements in sub-Saharan Africa. Countries like South Africa, Ghana and Kenya have their ratios below 10%.

Meanwhile, banking industry stakeholders and analysts have frowned on the CBN’s cash reserve requirement policy, describing it as huge and its impact strongly felt in the industry.

According to CBN data on the latest deduction, Zenith Bank Plc was the highest debited commercial bank and Fidelity Bank the lowest debited at N2 billion. A merchant bank was also hit by the sanction.

The data revealed the debit details as follows: Zenith Bank – 170 billion, Providus Bank – 40 billion, FCMB – 39 billion naira, First Bank of Nigeria – 27 billion naira, Guaranty Trust Bank Plc – 20 billion naira, Citibank – N12 billion, Stanbic Bank IBTC – N10 billion, Polaris Bank – N10 billion, Union Bank of Nigeria Plc – N10 billion.

Other banks debited include: Keystone Bank – N6 billion, Ecobank – N5 billion, Sterling Bank Plc – N3.6 billion, Fidelity Bank – N2 billion and Nova Merchant Bank – N1.5 billion naira.

king of investors recalls that in November 2021, Zenith Bank was also the most debited as it lost N90 billion to CBN alongside Access Bank Plc and United Bank for Africa Plc (UBA) which were debited N25 billion naira.

In December 2021, CBN debited 16 banks and two merchant banks N175 billion for failing to meet the cash reserve requirement.

Agusto & Co. in its report entitled “Economic outlook for 2022”, explained that cash reserve ratios are generally between 5% and 10% of local currency deposits.

He hinted that apart from the mandatory cash reserve ratio, banks hold special bonds with interest of 0.5% per annum. “These “special bonds” are not readily convertible into cash and are, in essence, interest-bearing cash reserves.

“We estimate that cash reserves (including interest-bearing cash reserves) were approximately 50% of LCY deposits at the end of 2021. We do not believe that the CBN will reduce this ratio significantly in 2022, as it continues to consider this as a major instrument for maintaining “stable” exchange rates,” the report read.

Sunny Nwosu, the Emeritus National Coordinator of the Independent Shareholders Association of Nigeria (ISAN) opined that the 27.5% CRR has not impacted the economy with the desired outcome after the easing of the Covid-19 lockdown.

Nwosu pointed out that the subsequent debiting of banks by the CBN is obviously a threat to the country’s banking sector as shareholders are concerned about the condition of banks and the safety of their investments.

Calling on CBN to rethink, he said: “Banks’ restricted deposits with CBN are idle funds. We argue that if these funds are with the banks, it will certainly increase their revenues, real sector lending and shareholder returns.

“If CBN can pay at least 3% interest on CRR’s mandatory deposits, it will go a long way to boosting the real sector and paying strong dividends to shareholders.”

However, Highcap Securities Limited Vice Chairman David Adnori explained that CRR is a monetary policy aimed at controlling the money supply in the banking sector and reducing inflation.

Adnori noted that if the CRR policy is not strictly followed, so much money will flow into the market which will depreciate the naira.

On the contrary, he pointed out that “the policy has not favored the banks because the fund does not earn any interest and does not benefit the productive sector. These are funds that banks lend to the real sector to stimulate business activities, finance working capital for the productive sector and boost GDP, but the CBN is withholding it. This is not a good development for the national economy in general.

“CBN has its reasons and by releasing these funds it could lead to hyperinflation which could harm the economy of the country. It’s like a double-edged sword – if you don’t, the economy is damaged and if you do, the economy also struggles,” Adnori concluded.