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Omodele Adigun and Chinwendu Obienyi
Just as the Central Bank of Nigeria (CBN)’ debited N118 billion from 14 banks as sanctions for Cash Reserve Ratio (CRR) rules’ breach, experts have warned that this would have a negative impacts on banks’ share performance .
According to analysts at FBNQuest Capital Research, the apex bank’s action will also cause downward pressure on the lenders’ liquidity ratios and earnings in the next financial year.
It was reported at the weekend that CBN debited 14 banks to the tune of N118 billion over a breach of its CRR rules.
The latest debit wass the fourth this year whichbrought the total sectoral debits to about N2.2 trillion.
In the FBNQuest analysts’ views, it is estimating an aggregate opportunity cost of funds of N86 billion in its net interest margin assumptions for each bank.
They state: “Due to the sizable debits on their accounts with the CBN, Zenith and UBA have the highest opportunity cost of funds at N34.4 billion and N15.8 billion respectively. In contrast, Fidelity and Access Bank are the least impacted, with opportunity cost of funds of N2.9 billion and N3.8 billion respectively. Assuming these funds were available to be deployed for lending by the banks, all things being being equal, we estimate an average earnings impact of -14.0 per cent”.
The researchers opine that it is clear that the CBN sees these discretionary debits as a viable administrative tool for foreign exchange (forex) management, adding that the CBN’s stance on CRR debits is at variance with its desire for banks to expand their balance sheet to increase lending to the real economy.
“Year-to-date, our universe of banks’ stocks has shed -21 per cent compared with the -9.3 per cent return on the Nigerian Stock Exchange -All Share Index (NSE -ASI). Nonetheless, we expect the hawkish stance of the CBN to continue to have a negative read-across for banks’ share performance”, they added.
The CRR is the minimum amount that banks are expected to leave with the apex bank from customer deposits. In January, the CRR was increased by five points to 27.5 per cent at the CBN Monetary Policy Committee (MPC) meeting with the explanation that the decision was intended to address monetary-induced inflation, while retaining the benefits from the CBN’s LDR policy. The affected banks in the July sanctions are Access Bank Plc, which was fined to the tune of N3 billion; Guaranty Trust Bank Plc, N15 billion; First Bank of Nigeria Ltd; N12.4 billion; Ecobank Nigeria, N7 billion; Sterling Bank Plc, N5 billion; Fidelity Bank Plc, N11 billion; Union Bank of Nigeria Plc; N12.5 billion.
Others include First City Monument Bank (FCMB) Ltd, N10 billion; CitiBank Nigeria Ltd, N10.2 billion; Stanbic IBTC Bank, N15 billion; Zenith Bank Plc, N7 billion; Wema Bank Plc, N3 billion; Titan Trust Bank, N2.5 billion and Rand Merchant Bank Nigeria Ltd, N4 billion.
