Coronavirus: How Economy Lockdown Worsens Banks’ Liquidity Crisis

There are strong indications that most Deposit money banks may be facing liquidity crisis and possibly in worst-case-scenario with customers who are embarking on massive withdrawals.

With virtually intermediation in suspension and renege by customers who took short-term loans due to delay in salaries and crippling businesses due to the earlier ‘stay-at-home’ instruction and currently ban on interstate movements, some banks’ vaults are said to have depleted considerably.

Payday Loans, referred to as salary advances, payroll loans and payday advances, are typically small, short-term unsecured loans that are tied to a borrower’s payday, according to Agusto & Co.

But the level of defaults has increased due to non economic activities ocassioned by the Covid-19 Pandemic

Consequently, most of the banks are increasingly battling unprecedented credit crisis as majority of their customers have had to bear the brunt of the biting economic crunch and general lull in business activities.

In fact, if the opinions of insiders is anything to go by, it may be correct to say that the nation’s banking community is in dire financial straits and may become public knowledge very soon.

Also resumption of liquidity management measures through the Open Market Operations (OMO) and activities in the foreign exchange market are not helping matters as they are also contributory factors to further liquidity strains on the banks.

Further investigations revealed that current crowds at most banks’premises and non opening of some branches are informed by lack of cash to meet the demands of customers.

It is a common knowledge that many of the banks have expanded their digital lending portfolios with the attendant quick and 24/7 access to funds for emergencies, particularly during this lockdown period.

“You will agree with me that the current crisis is novel as nobody was expecting it. Some of the banks had as usual entered into real and big time credit advances to their customers and with the crisis and lockdown, the banks have been out of business while customers have been drawing on them without corresponding transactions that would earn them income.

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“I can tell you that some of the banks are experiencing liquidity crisis, worsened by mass withdrawals by customers who are expecting likely complete lockdown” , Says an insider.

“Speaking further, he said that the current crowds being witnessed at some premises of the banks and non opening of some branches are basically due to liquidity problems. I can confide that in you. The only way out for some of the banks is to embark on delayed tactics with the hope that some customers would naturally go back in frustration, after spending hours without attention.

“Most worrisome is the fact that even CBN has commenced its liquidity management as instruments such as the open market operations have commenced. This is in addition to adherence of its mandatory deposits like CRR and LRR even in the face of this crisis, ” he added.

The development may have reignited unhealthy competition among the banks as some have resorted to other means of retaining their customers.

Consequently. Some of the banks have commenced instilling confidence in their customers while reassuring them of their determination of their continued support.

For instance, Fidelity bank yesterday reassured its customers that ” it will continue to take measures that will ensure the safety of customers, staff and other stakeholders during this period. This reassurance was given on Thursday during the bank’s 32nd Annual General Meeting (AGM) in Lagos.”

Similarly, the embattled Access Bank yesterday sent message to its customers saying,” Entire Access family will like to say ‘thank you’ for your continued support especially during the past weeks.

The year 2020 has redefined how we live and do business amidst the COVID-19 pandemic; utmost safety is the new normal.

Fortunately, with the improvements on our mobile, internet banking, USSD (*901#) and PrimusPlus, most of your everyday financial transactions can safely be completed from the comfort of your home using your computer or phone.

In addition, we have put all necessary measures and hygiene procedures in place to ensure your safety and that of our staff while transacting at our branches.

We reiterate our commitment to providing you with the highest level of service excellence always. ”

However, some analysts say CBN needs to do more for the banks as they strive to advance credit to the real sectors of the economy.

For instance, in October 2019 alone, the banks gave over N45b in over 2 million disbursements to individuals and have recently witnessed a spike in its volumes hitting N1billion daily.

Consequently, demand for total unsecured lending from households increased in the third (Q3) quarter of 2019 according to the CBN’s credit condition report.

As part of measures to assist the banks, CBN granted a further moratorium of one year on all principal repayments of its intervention funds, effective March 31, 2020 being part of measures to contain the impact of Covid-19.
The CBN also granted Deposit Money Banks leave to consider temporary and time-limited restructuring of the tenor and loan terms for businesses and households most affected by the outbreak of Covid-19 particularly oil and gas, agriculture and manufacturing.

However, the banks are not adhering to the regulator’s measures as they keep sending messages to customers, reminding them of their loan repayment that is due.
Also CBN’s directive to banks to halt retrenchment may have been adhered to in breach as some of the banks like. Access, are allegedly believed to have gone ahead with the exercise.

“I expect a lot of constructive engagement between banks and CBN on one hand and their customers on the other hand with a view to either restructure some of these loans in view of the current economic situation as well as moral suasion on the part of CBN for the banks to either reduce or deffer the ongoing restructuring in order to forestall industrial disharmony and rise in the industry’s Non-Performing Loans (NPL),” according to an analyst.

The NPL ratio moderated from 6.59 per cent in January to 6.54 per cent in February 2020 but it remained above the prudential benchmark of 5.0 per cent.
But, some other analysts were quick to observe that, majority of the MSMEs, who are mostly affected by the current situation do not have facilities from the traditional banks, but either Micro banks or other non financial institutions, which require government’s appropriate interventions for these sort of businesses outside the traditional banking system.