The Central Bank of Nigeria (CBN), has slammed a N7.02 trillion fine on Access Bank, United Bank for Africa (UBA) Plc, and eight other financial institutions in the country.
The other banks are – Guaranty Trust Holding Company Plc (GTCO Plc), FCMB Group, Sterling Bank Plc, Union Bank of Nigeria Plc, Stanbic IBTC Holdings Plc, Fidelity Bank Plc, and Zenith Bank Plc.
BizWatch Nigeria gathered that they were all fined over their failure to meet the 27.5% Cash Reserve Requirement (CRR) threshold.
According to the audited financial statements of these banks, the apex bank had debited them a sum of N6.71 trillion in 2020 for not meeting its monetary requirement.
In early 2020, the apex bank’s Monetary Policy Committee (MPC) increased CRR by 5% from 22.5% to 27.5% over its intention to address monetary-induced inflation whilst retaining its 65% Loan Deposit Ratio (LDR) policy.
What you should know about CRR
The CRR is the minimum amount banks and merchant banks are expected to retain with the CBN from customer deposits and it carries no interest and is not available for use by the banks in their day-to-day operations.
Therefore, by the directive, banks are compelled to retain up to 27.5% of their deposits in CRR requirement, which means that the deposits are not accessed by the banks for loans and advances.
Sharing his sentiment on the matter, Vice President, Highcap Securities Limited, David Adnori said CBN is using CRR to control inflation, adding that its introduction is a drastic monetary policy targeted at controlling money supply in the banking system.
His words: “If CBN fails to maintain its CRR policy, so much money will flow into the market and further deprecates naira. Generally, the policy has not favoured banks because the fund is not yielding any interest and of no benefit to the productive sector.
“These are funds banks lend to the real sector to drive business activities, finance working capital of productive sector and boost GDP but the CBN is holding it down.
“It is not a good development for the nation’s economy in general. However, CBN has its reasons, and releasing these funds, it might result in hyperinflation, which can damage the nation’s economy. It is like a double edge situation- if you don’t do it, the economy is damaged and if you do it, the economy also struggles.”
