The Nation Newspaper

Tag: CRR

  • CRR on private deposit may go up

    The Central Bank of Nigeria(CBN) may in the coming year, raise Cash Reserve Ratio (CRR) on private sector deposits by 20 per cent and further increase that of government deposits to 75 per cent, Managing Director, Financial Derivatives Company (FDC) Limited, Bismarck Rewane has said.

    In an FDC Economic report released at the weekend, he said the 38 per cent increase in CRR on public sector funds, which became effect in August, mopped over N1 trillion out of the financial system.

    He said the CBN targets a low-inflation rate of six to nine per cent next year, adding that further monetary policy tightening anticipated in January.

    He said inflation will be flat in the first quarter of the next year, but would spike to 11 per cent in the second quarter.

    According to him, the naira official trading band will be N155 to N165 to a dollar, with midpoint at N160, adding that stock market rally will continue in first half of first quarter.

    The CBN had in July raised the CRR for public sector deposits by 38 per cent to 50 per cent. The CRR is the portion expressed as a percentage of banks’ deposit balances, which they must have as reserve in cash with the CBN.

    CBN Deputy Governor, Economic Policy, Dr. Sarah Alade said the apex bank took time to study banks’deposit compositions before implementing the CRR policy. She explained that the CRR hike was necessary because there were pockets of liquidity that was destabilising the system.

    The CBN had in August reviewed guidelines for CRR reporting. The regulator said deposits from the Asset Management Corporation of Nigeria (AMCON), Bank of Industry (BoI), Nigerian Export-Import Bank (NEXIM) and Federal Mortgage Bank of Nigeria (FMBN) will not be reported as public sector funds.

    Others removed from the CRR list include Bank of Agriculture (BOA), Bank of Infrastructure, closed pension funds belonging to Government Institutions, State pension Boards, Governments Staff associations and cooperative societies.

    However, deposits from all Federal Government Ministries, Departments and Agencies (MDAs) and Companies, State Government MDAs and Companies as well as Local Government MDAs and their Companies were included.

    Also, deposits from the Nigeria National Petroleum Corporation Joint Venture accounts; Sovereign Investment Funds Government MDAs/Companies’ Collection Accounts such as Customs, Federal Inland Revenue Service among others fall within public sector funds. Also in this list are pilgrim welfare board and all accounts belonging to government universities.

     

  • ‘Nigeria’s CRR highest in Africa’

    A cross Sub-Saharan African countries, Nigeria’s banking sector has the highest Cash Reserve Ratio (CRR), at 12 per cent for private-sector customer deposits plus 50 per cent for public sector deposits, a report by Renaissance Capital (RenCap) has said.

    RenCap, an investment and research firm, said in a report titled: ‘Nigerian Bank – Killing Me Softly: The Impact of Tougher Regulation,’ that countries such as Kenya has a CRR of 5.25 per cent, Rwanda five per cent and Ghana nine per cent.

    RenCap said it cannot rule out the possibility of further CRR hike as the regulator appears to be using the CRR as the primary monetary tool for mopping up excess liquidity.

    “Our reading of the above is that the risk of a further hike in the CRR cannot be ruled out if the Monetary Policy Committee sees renewed pressure on the naira. The worst-case scenario, we believe, is that the CRR on public-sector deposits could be raised as high as 100 per cent, increasing our estimate of the blended CRR in Nigeria to 23 per cent. On our numbers, the hit to interest income over a year would increase to three to 14 per cent,” it said.

    “What the above suggests is that Nigerian banks are setting aside over twice (2x) the cash set aside by Kenyan banks for every $1 (in local currency) of customer deposits. In addition, Nigerians are setting aside 10x (10 times) the cash set aside by Kenyan peers for every $1 of public sector deposits.

    “From our discussions with the banks, the average exposure to public sector deposits is about 13 per cent. Using this figure, we estimate our weighted/blended CRR for Nigeria at about 17 per cent – well ahead of regional peers. We estimate that the increase in the public sector CRR to 50 per cent will reduce annual interest income for the banks by one to six per cent, holding all other factors constant,” it said.

  • ‘CBN targets single digit inflation in 2014’

    ‘CBN targets single digit inflation in 2014’

    The thrust of the Central Bank of Nigeria’s (CBN’s) monetary policy in retaining the Monetary Policy Rate (MPR) and Cash Reserve Ratio (CRR) 12 per cent is to achieve a lower rate of inflation on a more sustained basis, Head of Research Africa, Standard Chartered Bank, Razia Khan, has said.

    In an emailed report obtained by The Nation, she said there was a suggestion that the CBN will not rest on what it has already achieved as it concerns inflation, adding that merely getting to a single digit inflation is not good enough, she argued.

    “Although not a hard inflation target in the strict sense of the term, this does send a clear signal to markets to continue to anticipate a tightening bias to policy, especially if pressures increase,” she said, adding that the outcome of the last Monetary Policy Committee (MPC) meeting was largely as anticipated, with the MPR and CRR on public sector deposits, and the CRR on private sector deposits all kept on hold.

    However, the analyst said there was a distinct hawkish tone to the commentary, as a means perhaps of preparing the market for further tightening next year, with the talk of six-nine per cent inflation rate throughout 2014,

    “The CBN is not complacent on the inflation outlook. While everyone has been looking at the deceleration in headline inflation in October, the CBN rightly points out the pressures on core inflation in fact, both the year to year and month to month October headline print were slightly higher than we had anticipated, notwithstanding the best headline inflation data in Nigeria since March 2008,” she said.

     

  • CRR splits CBN, banks

    CRR splits CBN, banks

    Some banks have disagreed with the Central Bank of Nigeria (CBN) over the amounts debited them as Cash Reserve Ratio (CRR), The Nation has learnt.

    In July, the CBN raised the CRR for public sector deposits from 38 per cent to 50 per cent. The CRR is the portion expressed as a percentage of banks’ deposit balances, which they must have as reserve in cash with the CBN.

    A report by Renaissance Capital (RenCap) said some CRR amounts and classifications are being disputed by banks. The complaints, it said, were being looked into, adding that based on this, debit amounts are likely to fluctuate between now and end of the year for most lenders.

    RenCap, an investment and research firm, said: “While we estimate First Bank would have had to set aside an additional N150 billion, management states that it was debited N94 billion. Similarly, Access has stated it was debited N50 billion, vs our estimate of N73 billion. According to First Bank management, not all public-sector accounts qualify for the higher CRR. We also note that following the initial debits in August, the CBN has made some follow-up debits across various banks”.

    CBN Deputy Governor, Economic Policy Dr. Sarah Alade said the apex bank took time to study banks’ deposit compositions before implementing the CRR policy.

    She explained that the CRR hike was necessary because there were pockets of liquidity that was destabilising the system.

    The CBN had in August reviewed guideline for CRR reporting. The regulator said deposits from the Asset Management Corporation of Nigeria (AMCON), Bank of Industry (BoI), Nigerian Export-Import Bank (NEXIM) and Federal Mortgage Bank of Nigeria (FMBN) will not be reported as public sector funds.

    Others removed from the CRR list include Bank of Agriculture (BOA), Bank of Infrastructure, closed pension funds belonging to Government Institutions, State pension Boards, Governments Staff associations and cooperative societies.

    However, deposits from all Federal Government Ministries, Departments and Agencies (MDAs) and Companies, State Government MDAs and Companies as well as Local Government MDAs and their Companies were included.

    Also, deposits from the Nigeria National Petroleum Corporation Joint Venture accounts; Sovereign Investment Funds Government MDAs/Companies’ Collection Accounts such as Customs, Federal Inland Revenue Service among others fall within public sector funds. Also in this list are pilgrim welfare board and all accounts belonging to government universities.

    Alade also said forward guidance on CBN intervention in the foreign exchange market would be difficult due to lumpiness in liquidity. The Deputy Governor said of the 16 countries surveyed, the currencies of five recorded appreciation ranging from 0.15 per cent for the UK Pound Sterling to 3.64 per cent for the Euro between December, last year and October, this year.

    However, 10 currencies recorded depreciation ranging from 5.05 per cent for the Canadian dollar to 16.72 per cent for the Argentine Peso in the same period.

     

     

     

    She said the naira remained stable in the Dutch Auction System but depreciated by 2.64 per cent in the interbank market during the review period. On the wider scale, 23 emerging market currencies recorded depreciation of between 1.19 per cent for Peru; and 17.49 per cent for Brazil owing to the announcement effect of the US quantitative easing tapering.

  • CRR review: Banks to confront CBN at Bankers’ meeting

    CRR review: Banks to confront CBN at Bankers’ meeting

    •We’re open to dialogue, says apex bank

    Chief executives of banks are set to confront the Central Bank of Nigeria (CBN) next month at the Bankers’Committee meeting over the recent 50 per cent cash reserve requirement (CRR) on public sector deposits.

    The bank chiefs, who spoke to The Nation on Monday, said the new policy would tighten liquidity, slow down credits, increase interest rates and the delinquency of loan defaults.

    But the CBN Deputy Governor in charge of Operations, Mr Tunde Lemo, punctured most of these augments, saying that the banking watchdog was ready for dialogue with the bank chiefs.

    The Monetary Policy Committee (MPC) had stunned the financial markets with a public sector deposit reserve requirement. While the status quo on the key monetary policy instruments was maintained at 12 per cent, the MPC introduced a 50 per cent cash reserve requirement on all public sector deposits but left those of the private sector unchanged.

    CRR is the portion expressed as a percentage of bank’s deposit balances, which banks must have as reserve, in cash, with the CBN. The percentage is usually determined by the Central Bank. The reserve ratio is one of the instruments used to influence the money supply in a country and drain out or add up excessive money from the system.

    If the Central Bank increases the percentage, the available money for the banks to lend and make other transactions will reduce and vice versa.

    Justifying its perceived excess liquidity in the economy, the apex bank, which put the total public sector funds with banks at over N1.3trillion, said 50 per cent the CRR requirement on all public sector deposits, which is expected to implemented on August 7, would mop up N650billion from the system.

    Speaking with the newspaper on this development, the bank chiefs, who opted not to have their names in print, said there is no excess liquidity in the system. They said that what they have on their balance sheets are ‘sterilised Asset Management Corporation of Nigeria (AMCON) N3trillion bonds’, which they cannot convert to cash.

    AMCON had purchased the bad loans of banks and gave them bonds, which counts as the lenders’ liquid assets.

    The bank chiefs said: “The CBN believes that there is excess liquidity but this is not true. The average bank has about 70 per cent liquidity ratio but after you remove AMCON bonds, banks are left with just 35 per cent liquidity.

    “Don’t forget that as banks get government deposits, the CBN mops it up at OMO. CBN cannot just move the CRR from 12 per cent to 50 per cent. It should have been a gradual process because the CBN is not paying any interest on these deposits.

    “The equities market will be impacted. This is already happening. People will be compelled to divest from the capital market and this would cause equity bubble.”.

    But Lemo insisted that these arguments do not hold because 50 per cent CRR is applicable to only the government’s deposits. He also said banks were free to hand over their AMCON bonds to the CBN in exchange for cash when the need arises.

    He said: “Liquidity cannot be tight because the stipulated liquidity ratio is 30 per cent and the average in the industry 68 per cent. So, the excess liquidity should have gone into credits by now. Most of the banks are seating on excess liquidity.

    “In fact, they collect these monies from the government and purchase treasury bills with and lend back to the government. The implication is that the government is spending undue percentage of their revenue to pay for their deposits with bank.

    “Once the government deposits are refunded, the government will have more money to pump into infrastructural development. The bank chiefs don’t have to wait for the Bankers’ Committee meeting, we (the CBN) are open to dialogue because we recognise the intermediation roles banks play in the economy.”

    Analysts had also commented that the new policy would have a negative effect on banks.

    An analyst with Renaissance Capital, an investment bank, Adesoji Solanke, said though it signals the desire to tighten monetary policy, the policy measure adds to the headwinds affecting the Nigerian banking sector this year and is on balance, negative for the sector.

    “We view the impact of this as negative for the banks. This is a new measure in addition to the 12 per cent CRR on all deposits, which we believe signals tightening of monetary policy, most likely to protect the naira,” he said.

  • ‘CRR hike’ll be positive for naira’

    ‘CRR hike’ll be positive for naira’

    The naira will be the biggest beneficiary of the 50 per cent rise in Cash Reserve Ratio (CRR) on public sector deposits, analysts have said. While there was no change to exchange rate policy, the CRR effect will be positive for the naira given the N650 billion immediate liquidity drop in the financial system.

    The naira had a day after the CRR hike firmed to a four-week high against the dollar. The local currency closed at N159.9 to the dollar, its strongest since June 19. The CRR accounts for 10 per cent of banking sector deposits.

    In an emailed report, Consolidated Discount House Limited raised strong fears on the naira’s stability, stressing that Central Bank of Nigeria (CBN) Governor, Sanusi Lamido Sanusi, will ensure the defence of the local currency till his departure from the bank. Beyond these, it said the depletion of the naira will have strong domino effects on the system. It would also lead to negative carry trade and higher import costs for local businesses. The report said the single digit inflationary outlook for the second half of the year is largely anchored on stable exchange rates.

    Currencies analyst at Ecobank Nigeria, Olakunle Ezun said that by raising the public sector deposit CRR, the apex bank aims to slow growth in money supply and reduce inflationary pressures to sustain a comfortable level of inflation.

    He said monetary policy may remain relatively unchanged in the months ahead, assuming no significant change to key indicators. “Liquidity tightening will push up the short end of the yield curve by around 40 to 50 basis points. We also expect the longer end of the curve to move up, but by a smaller margin,” he said.

    The Monetary Policy Committee (MPC) of the CBN had last week left the Monetary Policy Rate (MPR) unchanged at 12 per cent. The Standard Deposit Facility and Standard Lending Facility were also held steady, at 10 per cent and 14 per cent respectively.

    However, the CRR for public sector deposits was raised to 50 per cent from 12 per cent in an attempt to reduce bank lending of these funds. By raising the CRR on public sector deposits, the CBN aims to slow growth in money supply and thereby reduce inflationary pressures to sustain a comfortable level of inflation.

     

    Interbank rates

     

    Rates at the interbank defied expectations and maintained a southward trend during the week. Afrinvest West Africa report said market expectation was that the new CRR should put an upward pressure on money market yields as profit taking was expected to ensue within that space. The 12 months Nigeria Interbank Offered Rate (NIBOR) closed the week at 12.8 per cent, having attained a 20-day 15.9 per cent peak on 17th July 2013.

    “With the increased CRR on public sector funds and the consequent liquidity squeeze, we expect the CBN Open Market Operation (OMO) rates to ease in the coming months to avoid excessive liquidity tightening,” it said.

     

    Public sector funds

     

    The CBN last week mandated banks to separately report public sector funds in their monthly and daily bank returns. In a circular to banks, CBN Director, Banking Supervision, Mrs Agnes Martins said the lenders will effective August 7, categorise their deposits under the Federal, State and Local Government deposits, with the reports included as additional memorandum items.

    He said the policy was a fallout of a review of recent development in the economy during the last Monetary Policy Committee (MPC) meeting. He said the reporting format requires that banks group their deposits under a specified code. He said that all Federal Government Ministries, Departments and Agencies (MDAs) and companies’ naira deposits will be reported under Federal Government Demand Deposits.

    All Federal Government MDAs and companies’ domiciliary accounts deposits will come under Federal Government Time Deposits while all state government MDAs and companies’ naira deposits fall within State Government Demand Deposits. Also, all state government MDAs and companies’ domiciliary accounts deposits in naira will fall under State Government time deposits while all local government MDAs and companies’ naira deposits will be reported under Local Government demand deposits category.

     

    Revenue deficit

     

    The Federal Government recorded a deficit year to date of N419 billion, FBN Capital said, quoting the CBN’s latest monthly report. The 2013 budget projects a full-year deficit of N887 billion. The report also said that Nigeria had posted only three monthly surpluses since May 2012.

    May recurrent items, including debt service and statutory transfers to bodies such as the National Assembly accounted for 76.2 per cent of total Federal Government spending and capital items the balance of 23.8 per cent. The budget projects shares of 67.5 per cent and 32.5 per cent respectively.

    The report said that on the surface, the position may not appear sufficiently critical to warrant the aggressive move taken by the MPC. It said that such a conclusion ignores the shortfall in oil revenues and the electoral calendar.

     

    Bilateral trade

     

    The Nigeria, Canada trade volume was projected to double to $6 billion from $3 billion by 2015, the Canadian Minister of International Trade, Ed Fast had said.

    He disclosed this in the Oxford Business Group (OBG) report, which indicated that Canada was working closely with the Federal government to address issues relating to security.

    The report titled: ‘Nigeria -2013 Report on Economic Reforms’, the firm said is prompting investors to take a “fresh look” at the country.

    Also, Fast said Nigerian government’s privatisation and anti-corruption reforms will create better opportunities for investors.

    “These ongoing changes will create better opportunities for all Nigerians and for investors from around the world. Canadian businesses are taking a fresh look at Nigeria and the opportunities it presents. They see that the environment is good for business, including a fair and strong regulatory framework to support and protect them,” he said.

     

    Agent banking

     

    Commercial banks and microfinance banks (MfBs) will get automatic licences to run agent banking when the guideline is reviewed in the coming months, CBN Governor, Sanusi Lamido Sanusi has said.

    He spoke in Lagos at the launch of the Geospatial mapping of Financial Institutions in Nigeria in conjunction with the Bill and Melinda Gates Foundation (BMGF).

    He said it was important to review the guideline and make it clearer because of initial challenges facing the banking practice. Sanusi said the agent banking is part of the CBN determination to enhance financial inclusion in the country. He said the broader aim of the financial inclusion target is that of the proposed 80 per cent adult Nigerians to be included, at least 70 per cent would be in the formal sector, with specific targets for services such as; payments, savings, credit, insurance and pensions outlined as well.

    “Achieving these targets will require the collaborative efforts of all the stakeholders in the financial industry, and with this in mind the CBN has approved a number initiatives centered around improving inclusion some of which include; The development of Agent Banking Guidelines, and tiered Know-Your-Customer (KYC) requirements to encourage Financial Institutions to reach out to underserved segments, the development of a Consumer Protection Framework under a newly set up Consumer Protection Department and a National campaign to promote Financial Literacy,” he said.

     

    Banks’ stocks

     

    Nigeria’s banking index fell the most in a month after the CBN tightened monetary policy by increasing reserve requirements, damping the outlook for lenders’ margins.

    Bloomberg said the Nigerian banking index, which tracks the West African nation’s 10 largest lenders by market value, declined 3.9 per cent to 404.84, the steepest drop since June 28.

    The CBN’s MPC led by Governor Lamido Sanusi introduced a 50 per cent cash reserve requirement on public sector funds last excess liquidity in the system.

     

    Bank to bank report

     

    Stanbic IBTC Plc has said its major focus in Nigeria will be strengthening retail lending and supporting Small and Medium Scale Enterprises (SMEs). Speaking during a new branch opening in Gbagada, the bank’s Regional Head, Nigeria, Lincoln Mali said he wouls adopt the Standard Bank in South Africa approach to retail lending in Nigeria.

    He said that the bank is not yet strong in retail business in Nigeria but that is going to change going forward. “In Nigeria, we are not all that known for the retail part of the business and that is what my team and I are bringing into the country. In South Africa, we are strong in retail lending. We will be strong in Nigeria as well. We have started to lend in the retail part of the business,” he said.

    Ecobank Transnational Incorporated announced the opening of its South Sudan banking affiliate. In a statement, the bank said the new banking affiliate, the 34th on the African continent, offers the opportunity to support the youngest African state in addressing the challenges in regards to its development. It said Ecobank South Sudan offers products and services of the Group to individuals, Small and Medium Scale Enterprises (SMEs), multinationals and institutions.

    Thierry Tanoh, the Group Chief Executive, said the bank is excited to have obtained the authorisation of South Sudanese authorities to operate in this country, which holds a huge potential for financial intermediation. “Our presence in four of its six bordering countries, namely Kenya, Uganda, the Democratic Republic of Congo and the Central African Republic, is a unique advantage to contribute to the development and integration of South Sudan young republic,” he said.

    Diamond Bank Plc partnered with the Rivers State Government on Wealth Creation and Poverty Reduction (WCPR) summit with the theme “Developing an Effective Comprehensive Framework for Wealth Creation and Poverty Reduction in Rivers State.”

    In a statement, the bank said the event which held in Port Harcourt is an initiative of the state government, through the Rivers State Office of the New Partnership for Africa’s Development (NEPAD) and the Rivers State Sustainable Development Agency (RSSDA).

    Diamond Bank said it is committed to supporting Micro, Small and Medium Enterprises (MSME) to grow businesses through capacity building, under its BusinessExpress Enterprise Series.

    The bank said it is supporting the growth of SMEs because it recognises that the future of a nation lies in the hands of entrepreneurs, so any energy expended in building up that sector cannot be wasted. It is something that is going to benefit the economy in years to come,”it explained.

    Heritage Bank unveiled plans to provide funding for the micro, small and medium enterprise (MSME) sub- sector of the economy.

    Speaking at the bank’s MSME Clinic held in Lagos, the bank’s Managing Director, Ifie Sekibo, expressed the lender’s commitment to assisting MSMEs to become large corporate organisations that can be quoted on the Nigeria Stock Exchange in the next three years.

    The bank’s chief said the lender likes starting small and growing over time. He said the bank wants to create, preserve and transfer wealth from one generation to the other. He said that big opportunities exist in the electronic banking business, while MSMEs have untapped potentials.