CBN Debits Banks N550bn for CRR Maintenance, Lending Shortfall
The Central Bank of Nigeria (CBN) took out N550 billion from commercial banks for failing to meet lending target. Weak economic condition has reduced deposit money banks’ lending appetite, though net interest margin remains elevated in the sector.
Analysts said the apex bank hawkish mood has pushed borrowing rates upward and at the same time raise default risk level. Hence, the surge in interest rate has kept the banks between the devil and the red sea as analysts forecast a significant default risk.
The Central Bank of Nigeria (CBN) is ceasing daily CRR debits and will be adopting an updated Cash Reserve Requirement (CRR) mechanism according to a letter to all banks titled Cash Reserve Requirement Framework Implementation Guidelines and dated February 02, 2024.
The segment of deposits subject to sterilization, according to CBN is determined the extant cash reserve ratio of 32.5% to increases in the banks’ weekly average adjusted deposits. The debit also considered CRR levy of 50% of individual banks’ lending shortfall.
In an interview sessions with MarketForces Africa, analysts said elevated yields on fixed interest securities asset are impediment to lending business.
“If investment in government securities are offering banks as much as 25% without hassle, and other margin dilutive development, why would a bank risk depositors’ funds in lending business”?
Borrowing rates from deposit money banks increase after the Central Bank of Nigeria’s monetary policy committee hiked benchmark interest rate successively until it reached 26.75% in an effort to fight inflation.
Nigeria’s inflation condition has become worrisome, climbing to multi-year high due to government policies, global economic condition and unintended consequence of economic reforms.
The private sector has not been doing well enough over interest rate tightening and exchange rate fluctuation. The consumption side of the economy has been tempered due to households reduced purchasing power.
Analysts said though banks net margin on loan has been boosted, there exit another downside which is often from borrowers’ ability to repay loans. The pressure on borrower increase as exiting loans are priced higher, forcing companies to pay more on old loans due to applied variable rate in line with development in market dynamics. #CBN Debits Banks N550bn for CRR Maintenance, Lending Shortfall
