The national co-ordinator, Progressive Shareholders Association of Nigeria (PSAN), Boniface Okezie, has advised the Central Bank of Nigeria (CBN) not to push banks into suicide.
Okezie made this remark while responding to questions by NextMoney during its virtual editorial board meeting anchored in Lagos.
The financial magazine had contacted stakeholders on the recent N460 billion the CBN debited banks that failed to meet Cash Reserve Requirement (CRR) targets in May, and the possible impact on financing small businesses.
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, amid lockdown announced by the Nigerian authorities to curtail the spread of the Covid-19 pandemic.
Okezie said it was counter-productive to enforce such policy when the banks were battling with dwindling deposits, possible rise in non-performing loans, dwindling profitability and low return on investment.
“This is not the time to enforce such policy; the CBN should allow the banks to breathe because businesses are in great trouble and the banks are battling for survival.
“Customers are not depositing because they are virtually not doing business; everything is at a standstill; small and medium enterprises are dying.
“Where will the banks get the fund to invest and support the real sector? The CBN should not push the banks into suicide because the pressure is already severe on them,” Okezie said by telephone.
National cor-ordinator, Pragmatic Shareholders Association of Nigeria, Bisi Bakare, expressed similar sentiment:
Ms Bakare said the CBN had almost gone for the juggler in its decision to implement the CRR debits at this time, adding that it would hinder the banks from extending credit to the SMEs and impede efforts to generate optimum returns for their stakeholders.
“The earning ability of banks will also be adversely impaired in bringing value to their shareholders,” Bakare added in a WhatsApp message.
National president, Trusted Shareholders Association of Nigeria, Mukhtar Mukhtar said the CRR debit was a way of “robbing the banks, their customers and shareholders” beyond SME financing.
“I think the CBN is robbing the banks, their customers and shareholders who invested. Apart from the negative impacts on their ability to finance SMEs, it will have gruesome impact on the banks’ balance sheets.
“It will affect banks’ profits because the monies at their disposal which could be used for business and financing of some critical sector transactions are constrained”, Mukhtar responded in a WhatsApp message.
The CBN had sanctioned 26 the banks, both commercial and merchant banks, by debiting their accounts to the collective amount of N459,719,847,947.07 for failure to meet the specified CRR obligations in May.
United Bank for Africa, First Bank of Nigeria and Zenith Bank suffered the highest CRR debits 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.
A top management official of a Tier-1 bank who would prefer not to be identified because of what he called “the sensitive nature of the matter”, told NextMoney that the banks would not meet their lending obligations to the SMEs considering the tight corner the lenders had 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 sanction imposed 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.
An investment analyst, Jackson Bruaimoh, said the banks have no reason to lament over the CRR default sanction against them, adding that many of them are sanctioned for contravening one rule or the other.
“I commend the CBN for the courage to wield the big stick this time; the banks are not interested in lending to the real sector. Their eyes are on forex business and fixed income investments which they consider safer, cheaper and more lucrative,” he said.
The CBN spokesman, Isaac Okorafor, could not be reached for comments as calls and messages sent to his mobile phone were not answered.
Cash Reserve Ratio (CRR) is the portion of the banks’ total deposits which they are mandatorily required to keep with the apex bank at a given time and cannot be accessed for lending.
The CBN Monetary Policy Committee (MPC) had in January 2020 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 rate climbed to 12.20 per cent in February, 12.26 per cent and 12.34 per cent in March and April 2020, respectively, notching 12.4 per cent in May.
This suggests that adjusting the prevailing CRR rate to ease the tight monetary policy grip on banks will not happen any time soon.
Nigeria has 41.5 million registered micro, small and medium enterprises (MSMEs) which contribute 50 per cent to 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 Covid-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.