Nigerian banks have lost a staggering N840.20 billion to the new cash reserve ratio (CRR) in 2024, as the regulatory environment is increasingly deleterious to lenders who have recently seen their share price tumble, according to Renaissance Capital.
The 2024 figure surpasses the cumulative N862.1 billion lost under the old discretionary framework between 2020 and 2023.
“This FY24 loss figure suggests that the 50 per cent CRR regime is proving more detrimental to banks’ profitability and liquidity than the previous discretionary CRR framework,” said analysts at Renaissance Capital.
The Cash Reserve Ratio (CRR) is the percentage of total deposits that banks are required to hold in cash and not lend out or invest.
This ratio is determined by the central bank of a country, such as the Reserve Bank of India (RBI), and serves as a financial safety measure to ensure liquidity and stability in the banking system.
It is noteworthy that the country’s CRR is the highest in the world, which leaves banks with little money to lend to the real sector of the economy.
With the Monetary Policy Committee (MPC) of the central banking holding in July, investors will be hoping that the policy maker relaxes some of its stringent rules since lenders are still raising capital to meet the recapitalisation.
Recently, the Apex Bank has mandated banks to suspend dividend payment, defer management bonuses, and pause foreign subsidiary investments. This directive compounded the regulatory woes of lenders who saw their share prices slide and they have not recovered.
“From an operational perspective, a CRR reduction would enhance banking sector liquidity, reduce reliance on commercial paper issuance for liquidity management, and improve overall financial system efficiency. A CRR reduction should be followed by more stringent non-performing loan disclosures. The CBN should take a leaf from the Bank of Ghana’s recent policy directive on listing of individual defaulted loans in annual audited accounts, alongside other measures,” said analysts at Renaissance Capital.
