CBN Debits Banks Ahead of FX Auction for Third Time in 2020

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CBN Debits Banks Ahead of FX Auction for Third Time in 2020
Godwin Emefiele, Governor, Central Bank of Nigeria

CBN Debits Banks Ahead of FX Auction for Third Time in 2020

  • Debit comes days before the CBN’s FX auction, suggesting that the CBN is trying to limit the banks’ FX demand
  • FCMB, UBA and FBNH continue to be the most vulnerable; although UBA was not hit by this recent debit
  • Cost of funds and lending costs are expected to rise on account of this, counteracting the MPR

The Central Bank of Nigeria (CBN) has debited 26 banks a total of ₦216.1 billion, attributed to the CRR (Cash Reserve Ratio) compliance requirement.

Experts explain that the pattern of deposits quarantine is coming ahead of foreign exchange auction, pointing this as quasi capital controls.

Analysts at Tellimer recall that two weeks ago, the CBN debited banks ₦459.7 billion for the same purpose.CBN Debits Banks Ahead of FX Auction for Third Time in 2020

“This is the third CBN debit in 2020; bring the total CBN debits for the year to ₦ 2.08 trillion”, analysts stated.

These include the CRR and loan to deposit ratio (LDR) infringements in April 2020 of ₦1.4 trillion.

Meanwhile, there was another CRR debit of ₦460 billion; and now the most recent is ₦216 billion.

CBN penalties for Nigeria Banks so far this year: Tellimer said, “Our usual suspects FBNH and Zenith have been on the receiving end of all three central bank penalties in 2020.

“FBNH has had 4% of its deposits (using Q1 20 figures) debited year to date, while the figure is a bit higher for Zenith at 5%.

CBN debits also serving as quasi capital controls
Tellimer explained that this latest CRR debit comes days before the CBN’s foreign exchange auction.

Read Also: CBN, Bankers’ Committee ask Banks to halt lay-offs

“As with the last two CBN debits which suggests a pattern to these otherwise spurious debits”, Tellimer explained.

Tellimer said, “Speaking with the banks, we get the sense that the CBN is trying to discourage them from making huge demands at the FX auctions.

“So, by making their available balances smaller, they limit the banks’ ability to pressure the CBN on the FX front”.

Meanwhile, despite the pressure, analysts at Tellimer maintain Buy recommendations on seven of the eight Nigerian bank stocks in its coverage.

The exception being FCMB where we have a Hold, analysts explained.

“We will be revisiting our earnings forecasts and equity valuation to incorporate the increased operating pressure and regulatory risks”, Tellimer stated.

CBN Debits Banks Ahead of FX Auction for Third Time in 2020

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