- As CBN Debits Banks N459.7bn for CRR Default
The fate of Nigeria’s small and medium enterprises (SME) hangs in the balance as the banks may be hamstrung in extending the much needed lending facilities to the sector during the year.
The Nigerian government, through the Central Bank of Nigeria (CBN, had approved a number of intervention fund windows to assist operators of the SMEs to cushion the effects of the COVID-19 pandemic and re-start their businesses after the lockdown.
But the CBN has proceeded to sanction the banks by debiting their accounts to the collective amount of N459.7 billion for failure to meet the specified Cash Reserves Ratio (CRR) obligations in May.
The sanction which affected 26 banks, both commercial and merchant banks, led to a collective debit of N459,719,847,947.07 against them, a development stakeholders believe would impact negatively on the banks’ operations and reduce their profitability during the year.
The latest CRR debits occurred barely one month after many banks were collectively debited to the tune of N1.4 trillion for the same reason in April in the midst of the lockdown imposed by the Nigerian government to curtail the spread of the COVID-19 pandemic.
United Bank for Africa, First Bank of Nigeria and Zenith Bank suffered the highest CRR debits sanctions with N82.35 billion, N59.34 billion and N50 billion respectively.
Others are FCMB N45 billion, GT Bank N40 billion, Stanbic-IBTC N37 billion, Unity Bank N30 billion and Citibank N24 billion.
The least debits were posted against TAJ Bank N190 million, FBN Merchant Bank N250 million, Suntrust Bank N1 billion and Titan Trust Bank N2 billion.
Stakeholders express concern that the move could leave many banks cash-strapped thereby unable to pursue their various financing programmes in support of the real sector, especially the SMEs.
Investors who spoke on the development expressed sadness over the action of the CBN in imposing the CRR sanction on the banks instead of finding a way of assisting the lenders survive the headwinds of COVID-19.
National President, Progressive Shareholders Association of Nigeria, Boniface Okezie slammed the CBN for what he called a move to force the banks to commit suicide.
“This is not the right time to apply such a draconian policy; the banks are already challenged. The economy is in a bad shape; businesses are not moving and people are not earning income to deposit in the banks.
“Many businesses have closed down. So, where will the banks get the money to lend to the SMEs after debiting them with such a huge amount for not meeting CRR target?”
“This will further eat into shareholders’ dividend and negatively impact on the investors’ returns during the year,” adding “the CBN should not allow the banks to commit suicide,” Okezie told NextMoney in a telephone interview.
A top management official of a Tier-1 bank who would prefer not to be identified because of what he called the sensitivity of the matter, told this news medium that the banks cannot meet their lending obligations to the SMEs considering the tight corner they have been pushed to.
“Banks are not Father Christmas. They are trading with investors’ assets; they must account for it. No one should expect the banks to generously extend credit to the SMEs the way it had been planned because the continued sanction by the CBN is a huge burden for the banks to bear,” the new generation bank official said in an e-mail response on the subject-matter.
Cash Reserve Ratio (CRR) is the portion of the banks’ total deposits ‘quarantined’ by the CBN which the banks are mandatorily required to keep with the apex bank and cannot be accessed as loanable funds.
The CBN had in January raised the CRR by 500 basis points to 27.5 per cent (from 22.5 per cent) in keeping with inflationary trend. The 27.5 per cent CRR rate was retained in the March and May sessions of the MPC meeting this year.
Nigeria’s inflation rate has maintained an upward trend since January when it recorded N12.13 per cent – the highest since April 2018. Inflation climbed to 12.20 per cent in February, 12.26 per cent and 12.34 per cent in March and April 2020, respectively.
This suggests that expectations of adjusting the prevailing CRR rate will not bring in the expected results.
The 41.5 million micro, small and medium enterprises (MSMEs) in the country contribute 50 per cent to Nigeria’s GDP and account for 86.3 per cent of jobs (59.6 million jobs in 2017) according to a report by the National Bureau of Statistics (NBS) and the Small and Medium Enterprises Development Agency of Nigeria (SEMEDAN).
A recent survey carried out by the Enterprise Development Centre of the Pan-Atlantic University, Lagos, on the impact of COVIE-19 on MSMEs, showed that 93 per cent of small businesses reported decline in revenue while 89 per cent admitted having issues in their supply chains due to restrictions on inter-state movement.