Banking sector cash reserves exceeded N9.5trn in 2020

The banking industry’s restricted cash reserves as of 2020 exceeded N9.5 trillion and translated to an effective Cash Reserve Requirement (CRR) of 37 per cent.

This is contained in Nigeria’s foremost research house and rating institution Agusto & Co. Limited’s recently released flagship 2021 Banking Industry Report.

The report is the most current and comprehensive report on the banking industry in Nigeria based on the review of the financial statements of 20 commercial banks and five merchant banks.

It observed that Nigeria has the highest reserve requirement in sub-Saharan Africa. South Africa, Kenya and Ghana all have CRR’s of below 10 per cent.

“We believe the elevated CRR level moderated the Industry’s performance and liquidity position during the year under review. Assuming the sterile CRR was invested in treasury securities at five per cent, N482 billion would have been added to the industry’s profit before taxation,” the firm stated.

According to Agusto & Co., this would have increased the Industry’s return on average equity (ROE) by 11 per cent to 31.6 per cent in the financial year ended 31 December 2020.

The report titled: ‘Nigerian Banks Record ROE Less Than 31.6% Due to Aggressive CRR Implementation’, reviewed the industry structure, financial condition, the regulatory environment in addition to the macroeconomic environment and its impact on the Nigerian banking industry.

Leveraging lessons from the 2016/2017 economic recession, it stated that the Nigerian banking industry was better prepared in 2020. Proactive measures in the form of forbearance granted by the Central Bank of Nigeria (CBN), enabled banks to provide temporary and time-limited restructuring of facilities granted to households and businesses severely affected by COVID-19.

There was generally a cautious approach to lending in the Industry, given difficulties in the operating environment.

According to the report, although gross loans and advances grew by 12 per cent, loan growth was negative when the 19.3 per cent naira devaluation was considered. Underpinned by the forbearance and proactive measures adopted by banks, the NPL ratio improved to 6.6 per cent (FYE 2019: 7.6 per cent), it said.

The reliability of business continuity measures was tested in 2020, considering the movement restrictions that lasted for months. Most banks showed resilience through innovative measures including remote work arrangements and upgrade of network infrastructure to accommodate higher traffic on digital channels.

The firm says these arrangements also provided support during the mandatory curfew elicited by the civic unrest that followed the #EndSARS protests in October 2020.

Indeed, the pandemic brought to the fore, technology’s crucial role in deepening financial services as some banks recorded as much as a 50 per cent increase in digital banking transaction volumes.

However, these gains were limited by the CBN-induced reduction in bank charges, which took effect in January 2020.

As a result, electronic banking income declined by 27.3 per cent, accounting for a lower 13.2 per cent (FY 2019: 21.1 per cent) of non-interest income.

The CBN’s policies targeted at lowering interest rates have persisted especially given the dire need to stimulate the economy following adversities created by the pandemic. However, Agusto & Co recollected that given the need to moderate inflation amidst efforts to maintain a stable exchange rate, the cash reserve requirement (CRR) was increased and standardised to 27.5 per dent for both merchant and commercial banks. The standardised CRR was implemented alongside discretionary deductions.

YOU SHOULD NOT MISS THESE HEADLINES FROM NIGERIAN TRIBUNE

We Have Not Had Water Supply In Months ― Abeokuta Residents

In spite of the huge investment in the water sector by the government and international organisations, water scarcity has grown to become a perennial nightmare for residents of Abeokuta, the Ogun State capital. This report x-rays the lives and experiences of residents in getting clean, potable and affordable water amidst the surge of COVID-19 cases in the state…

Selfies, video calls and Chinese documentaries: The things you’ll meet onboard Lagos-Ibadan train

The Lagos-Ibadan railway was inaugurated recently for a full paid operation by the Nigerian Railway Corporation after about a year of free test-run. Our reporter joined the train to and fro Lagos from Ibadan and tells his experience in this report…