The Independent Shareholders Association of Nigeria (ISAN) has recommended that the Central Bank of Nigeria (CBN) pay interest on banks’ mandated deposits as a way out of the Cash Reserve Requirement (CRR) stalemate imposed on banks and to avoid policy incapacitation of the national economy.
Speaking at an emergency meeting held at the weekend in Lagos, Chairman, ISAN Universal Academy, Sir Sunny Nwosu said the shareholders are concerned about the state of commercial banks and the protection of local portfolio investors’ investments.
According to them: “After serious evaluation of the CRR and current AMCON scam, ISAN insists 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 the CRR to 15 percent 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 challenging character of the Nigerian economy makes it imperative for CBN to pay interest on restricted deposits.
“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 the real sector, and returns for shareholders.
“If CBN can pay at least three percent 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.
Sir Nwosu said the Central Bank of Nigeria (CBN) Cash Reserve Requirement (CRR) positioned to complement the open market operation (OMO) in managing excess liquidity in the banking system in recent times has failed to effectively serve the purpose for which it was intended.
He also advised that the government should declare a state of emergency to enable key financial industry regulators to unlock the broad-based financial services growth amid the financial inclusion thrust policy of the nation.
“That the recent increase of CRR by five percent to 27.5 percent as against 22.5 percent have not also yielded the desired economic results after the first phase of Covid-19.
“That available data showed that 10 banks were cumulatively debited N4.95 trillion and N7.78 trillion respectively in CRR between 2019 and 2020 alone.
“That analysis of some bank’s CRR debit showed that Zenith Bank Plc’s restricted deposit with CBN rose from N680.26 billion in 2019 to N1.33 trillion in 2021, while FBN Holdings Plc’s restricted deposit hit N1.32 trillion in 2020 from N843.44billion in 2019.
“FBN Limited and FBN Quest Merchant Bank Limited had also restricted balances of N1.3 billion and N39.37 billion respectively with CBN as at December 31, 2020.
“Access Bank Plc CRR deposit with CBN also grew to N1.31trillion or an increase of 54 percent from N848.85billon in 2019 while Guaranty Trust Holdings Plc (GTCO) reported N1.03trillion mandatory reserve with CBN in 2020 from N443.65 billion reported in 2019.
“United Bank for Africa (UBA) mandatory reserves with CBN also increased to N1.10 trillion in 2020 as against N832.11 billion in 2019. That CRR is a forced replication of what the Asset Management Corporation of Nigeria (AMCON) earlier did in the banking sector where six commercial banks paid N155.45 billion into an idle sinking fund between 2015 and 2017. Banks also have continued to pay.
“That the AMCON January 1, 2011, sinking fund agreement with banks requiring CBN to contribute N50 billion and banks an equivalent of 0.5percent of their total assets as annually for ten years has elapsed on January 2, 2021. That continuous contribution of a non-refundable levy to AMCON by all banks in Nigeria, despite the difficult business operating environment any without ownership interest, rights or obligations on the contributor amounts to institutional scam,”
He continued: “That ISAN which had previously opposed the sinking fund, still opposed the failed policy project and urged the federal government to liquidate AMCON and enhance shareholders returns and the economy.
“That the continuous debit of banks under CRR by CBN is putting the banking sector under serious threat and compelling impotency toward sustainable intervention in the real sector. That the 27.5 percent CRR impact on active 4.9 million retail shareholders has resulted in dismal dividends, banks’ net interest income, and the general economy.
“That CBN debiting of banks frequently, so far, has no known impact in curbing speculation against the Naira and the noticeable shortages of foreign exchange. Given the dire need to stimulate the economy after the international and national adversities created by the Covid-19 pandemic, the industry’s restricted cash reserves exceeded N9.5 trillion in 2020 and translated to an effective CRR of 37 percent.
“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 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 of 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 the “government.
“ISAN is seriously worried about the health of domestic banks and the economy in the long term when juxtapose against what AMCON foist on commercial banks. CBN warehousing of about N1.2 trillion out of the banking system since raising the CRR by 5 percent to 27.5 percent coupled with the AMCON sinking funds calls for serious concerns by all stakeholders.
“Worried by currently debilitating state of the nation’s banking sector, the fulcrum of economic growth, stability and wealth creation, ISAN suggests that government should declare a state of emergency to enable key financial industry regulators to unlock the broad-based financial services growth amid financial inclusion thrust policy of the nation,”