Zenith, GTbank, others express concerns over CBN’s constant CRR debits

Leading Banks in the country, including Zenith Bank Plc, FBN Holdings Plce, UBA Plc among others have expressed concerns over the constant debit of Cash Reserve Ratio (CRR) from banks.

The banks raised the concern at the recently concluded Standard Chartered Bank’s 2020 Africa Investor’s Conference.

Aside from the negative the negative impacts of CBN’s constant CRR debits, the banks also expressed worries about FX liquidity, as well as the exchange rate unification at CBN’s different windows. When will the CBN resume dollar sales to foreign portfolio investors in the I&E window?

“Banks are more concerned about the arbitrary nature and lack of understanding of the CRR debits as it makes it difficult for them to plan. Most are increasing steps to reduce balances with the CBN to limit debits.  According to the CBN, CRR balances with the CBN currently stand at N10tn, 22% of sector assets and 50% of sector deposits.

“This is negative for NIMs, but funding costs have also declined, dampening the impact. Most of the banks have presented loans to the CBN for restructuring but are still engaging with clients. According to the CBN, loans presented by the sector for restructuring account for 32.9% of total loans, implying an overall weakness in sector asset quality, which we will likely not see in asset quality deterioration by FY20e given the regulatory forbearance.

“Sector NPL ratio currently stands at 6.6% vs. 11% in April 2019. Banks continue to maintain their position of following strict credit processes to drive credit growth, and not grow loans aggressively due to pressure from the loan-to-deposit ratio (LDR) minimum lending policy of the regulator.

“The improvement in oil prices has also reduced the concerns of asset quality deterioration in oil and gas exposure. Obligors in the sector have a breakeven cost price at the USD30/bbl level. Some banks expect further devaluation in the currency at the official window, given the depressed FX revenue outlook from

Recall that there have been different reports and forecasts about the recent negative pressures on Nigerian banks and how their earnings/profitability might take a hit. And this is probably the first time these banks are acknowledging and speaking up about these changes. It is unclear, at this point, what the CBN might do to remedy some of the concerns raised.

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