Kayode Tokede
Shareholders under the aegis of Independent Shareholders Association of Nigeria (ISAN) have called on the Central Bank of Nigeria (CBN) to reduce its Cash Reserve Requirement (CRR) to 15 per cent or pay three per cent interest on restricted banks deposits with the apex bank.
Speaking on behalf of shareholders, the National Coordinator Emeritus, Independent Shareholders Association of Nigeria (ISAN), Sunny Nwosu at a press briefing in Lagos noted that recent increase of CRR by five per cent to 27.5 per cent as against 22.5 per cent have not yielded the desired economic results after the first phase of Covid-19.
He noted that the association is worried about the state of commercial banks and safety of local portfolio investors’ investments following the repeated fleecing of the banking industry by CBN.
Nwosu said the continuous debit of banks under CRR by CBN is putting the banking sector under serious threat and a compelling impotency toward sustainable intervention in the real sector.
According to him: “The 27.5 per cent CRR impact on active 4.9 million retail shareholders have resulted into dismal dividends, banks’ net interest income and the general economy.
“ISAN specifically submit that the only way out of the CRR logjam foisted on banks and to avert policy incapacitation of national economy is for CBN to pay interest on banks mandatory deposits.
“After serious evaluation of the CRR and current AMCON scam, ISAN insist that the CBN should pay interest to banks on restricted deposits to enhance banks obligation to the real sector. In the alternative the apex bank should reduced 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 challenge character of 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 real sector and returns for shareholders. If CBN can pay at least three per cent 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.
He however suggested to the CBN to revalue CRR effects on the economy within the earlier failed desire of the monetary ratio.
He added that the CBN’ s debiting of banks frequently, so far, has no known impact in curbing speculation against the Naira and the noticeable shortages of foreign exchange.
He explained further that: “Given the dire need to stimulate the economy after the international and national adversities created by Covid-19 pandemic, the industry’s restricted cash reserves exceeded N9.5 trillion in 2020 and translated to an effective CRR of 37 percent.
“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.
“The cumulative restricted deposits of banks so far as at 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 at 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, he added, 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 government. That banks interim reports in 2021 shows poor revenues following higher borrowing costs as CRR hike further complicates banks currency flow already hit by fallout from Covid-19 and the oil price shocks. That current banking industry squeeze has also created further national economic challenges in the face of dwindling earns of Nigerians and declining remittances, ”he said.
