By Obinna Chima
Analysts at Renaissance Capital Limited (RenCap) have described the 12 per cent cash reserve ratio in the country as high and punitive.
In fact, RenCap urged the Central Bank of Nigeria (CBN) to reduce the CRR, which is the ratio of cash which banks have to maintain with the apex bank.
The financial advisory firm stated this in its latest report on Europe Middle East and Africa (EMEA) banks.
The CBN’s Monetary Policy Committee (MPC) meeting is expected to commence today. The CRR, Monetary Policy Rate (MPR) (both at 12 per cent) and the macroeconomic environment are some factors that the committee would consider at the meeting.
RenCap argued that a reduction in CRR would spur credit growth.
“We could see acceleration in credit growth from the mid-teens to about 20 per cent on the back of initiatives in the power and oil sector coming to fruition. Credit growth will also be affected by movements in the cash reserve ratio – at 12 per cent it remains punitively high for the banks.
“However, we think inflation is likely to remain sticky, given the scope for further fuel subsidy reductions, resulting in a muted reduction in the monetary policy rate from 12 per cent,” it added.
It anticipated an improvement in Gross Domestic Product (GDP) growth from 6.4 per cent it had estimated in 2012.
RenCap added: “However, we think inflation is likely to remain sticky, given the scope for further fuel subsidy reductions, resulting in a muted reduction in the monetary policy rate from 12 per cent.
“With the naira having strengthened towards year-end, there may be scope for some relief on this front. We believe Net Interest Margins (NIMs) could be under some mild pressure given the fall in treasury bill yields, but this will be somewhat offset by lower funding costs.”
It pointed out that both the Nigerian and Kenyan stock markets were strong performers last year, adding both markets started 2013 on an aggressive note. “Within the Nigerian banks our top pick is United Bank for Africa (UBA) Plc – despite its being an outperformer last year we believe the valuation remains compelling.
“There are still some easy wins operationally for UBA, including the re-pricing of some its book, which should help to close the gap in NIMs versus peers. Cost control has been strong and should continue to boost earnings growth. We also like Access Bank and believe more can reaped from its acquisition of Intercontinental Bank. The key this year will be revenue growth, given the focus in 2012 on right-sizing the combined business,” it stated further.