Report: Top 5 Banks’ Cash Reserve with CBN  Totalled N51.54trn in Five Years

Kayode Tokede

A report by Renaissance Capital Africa has revealed that five leading Deposit Money Banks (DMBs) cash reserve with the Central Bank of Nigeria (CBN) totalled N51.51 trillion between 2020 and 2024.

Renaissance Capital in a report titled,  “Nigerian Banks: Cash is King,” named  Access Holdings, First Holdco Plc, Zenith Bank Plc, United Bank for Africa Plc (UBA) and Guaranty Trust Holding Company Plc (GTCO) as the leading depositors with the CBN.

CRR is the minimum amount banks and merchant banks are expected to retain with the CBN from customer deposits, it earns no interest and is not available for use by the banks in their day-to-day operations.

It is one of the ways CBN regulates the country’s money supply, inflation level and liquidity in the country. The higher the rate, the lower the liquidity with the banks.

In January 2020, the Monetary Policy Committee (MPC) of CBN increased CRR by five per cent from 22.5 per cent to 27.5 per cent and in September 2022, it moved it to 32.5 per cent.

The MPC at its first meeting in 2024 increased CRR to 45.00 per cent  from 32.5 per cent amid double-digit inflation rate. However, the committee at the second meeting in 2024, adjusted the CRR for Merchant Banks from 10.0 per cent to 14.0 per cent.

Currently, the CBN by regulation forces banks to retain up to 50 per cent of their deposits to meet its CRR requirement, meaning that the deposits are not accessed by the banks for loans and advances.

The report by Renaissance Capital Africa showed that among the Tier-1 DMBs, Access Holdings, followed by Zenith Bank in the last five years have the highest amount reserve with the CBN. 

For instance, Access Holdings and Zenith Bank’s total cash reserve with CBN   stood at N13.03 trillion and N12.76 trillion in the last five years, respectively. 

Also, First Holdco’s cash reserve with CBN between 2020-2024FY stood at N9.68 trillion,while that of UBA at N9.43 trillion in the period under review.

For GTCO, the lender’s cash reserve with CBN between 2020-2024 FY currently at N6.64 trillion.  

The policy, which started in 2019 has drawn criticisms from most of the banks,  stakeholders and shareholders.

Renaissance Capital Africa in the report noted that the CBN’s decision to raise the CRR to 50per cent while  simultaneously mandating banks to recapitalise to support lending for a $1 trillion  economy by 2030 appears contradictory.

“While the recapitalisation directive aims to  strengthen banks’ capacity to lend, the 50per cent CRR severely restricts their ability to  deploy funds, effectively undermining the policy’s intent. The feasibility of the $1  trillion gross domestic products (GDP) target is questionable, given that a core rationale for recapitalisation was  to spur credit growth, an outcome now constrained by the CRR’s liquidity drain.

“With CRR at 50per cent and the liquidity ratio at 30per cent, banks are left with only 20per cent of  customer deposits available for lending, well below the regulatory Loan-to-Deposit  Ratio (LDR) benchmark of 50per cent. 

“This structural limitation makes it challenging for  banks to meet domestic lending targets, even with higher capital buffers. Notably,  banks currently maintaining LDRs above 20per cent are likely doing so through deposits  sourced from international operations, which remain unaffected by the CBN’s  domestic CRR policy,” it stated. 

The firm noted that the policy mix creates conflicting incentives, while  recapitalisation seeks to expand lending capacity, the CRR hike stifles liquidity,  forcing banks to prioritize balance sheet management over credit expansion. 

“Unless  adjusted, these measures risk stifling the very growth they were designed to support,” Renaissance said. 

Renaissance Capital Africa, while commending the CBN’s overall regulatory stance, said it viewed specific directives, particularly the 50 per cent CRR requirement, as excessively stringent and potentially counterproductive to policy objectives. 

“The CBN’s recent measures requiring banks to pause dividend payments, defer management bonuses, and halt foreign subsidiary investments effectively force the banking sector to “bite the bullet”. 

“However, these institutions now require operational breathing space to implement these changes effectively. 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,” the report added. 

A reliable source in one of the Tier-2 banks had explained to THISDAY that continued debits of CRR by CBN is putting the banking sector under serious threat, stressing that the hike to 50 per cent has mounted more pressure.

When the policy was introduced, banks werecomplaining bitterly as it has affected their Net Interest Income.

Shareholders of these banks over the years have expressed displeasure about restricted deposits with the apex bank not making it available for banking operations.

Speaking with THISDAY, Chairman, Progressive Shareholders Association of Nigeria (PSAN), Boniface Okezie, said shareholders have been advocating to CBN to pay interest to these banks.

He said, “The funds deposited by banks to CBN are not used. If these funds are with banks, certainly it will enhance their earnings and returns to shareholders.It will create more banking expansion. The deposit fund is meant for bank customers and banks cannot make use of them.

“If CBN can pay at least three per cent of the mandatory funds collected from banks, it will go a long way to help banks to have more money and drive the real sector of the nation’s economy and pay robust dividend to shareholders.”