Federal government and Central Bank of Nigeria’s aggressive revenue drive typified by tax levies and Cash reserve ratio (CRR) respectively may be counterproductive as banks may face dearth of loanable cum investment funds, some analysts say.
This is because the forceful implementation of the CRR, currently at 27.5 percent in an effort designed to curtail excess liquidity in the banking sector could leave the banks cash strapped for other developmental and intermediary services.
CBN, in January increased the CRR, which requires banks to deposit a certain percentage of their liquidity, to 27.5 percent from 22.5 percent, with punitive measures anytime the banks fail to meet the obligation.
The exercise, according to CBN, is to curtail excess liquidity in the banking sector which, it said, could stoke inflation. But inflation has been on the rise in recent times.
Also, CBN, last year, boosted the loan-to-deposit ratio by 65 percent in a bid to accelerate lending.
Some of the analysts see some of these policy measures as contradictory and counterproductive and in most cases difficult to meet, particularly in this pandemic period.
Specifically, CBN on Friday, June 19, collected N216 billion ($598 mln) from banks with excess cash holdings as part of measures to support the naira, according to Reuters.
Similarly, in Q1 2020, Nigeria’s tier-1 banks, including FBN Holdings Plc, United Bank for Africa Plc, Guaranty Trust Bank Plc, Access Bank Plc, and Zenith Bank Plc collectively, paid the sum of N29.8 billion as company income tax to the Federal Inland Revenue Service (FIRS), according to Nairametrics, an online platform.
The breakdown of the tax payments, shows how the most profitable banks during the first quarter of the year also paid the most taxes.
While the crash of the oil prices at the international markets has left the federal government with no option but to embark on aggressive revenue drive, the need to save the dwindling value of the local currency through the nation’s foreign reserves has also continued to manifest in the poor showing of the naira against other foreign currencies.
Indeed, the naira has come under intense pressure in recent months during the coronavirus pandemic, a sharp fall in the price of oil, the nation’s main export and departing foreign investors, causing a large financing gap.
The currency has been hitting new lows on the over-the-counter spot and black markets since March after CBN adjusted its official rate, implying a 15% devaluation, to absorb the impact of an oil price crash.The naira traded at N385/$ on the official market this week, weaker than a quoted rate of N361/$, backed by the CBN.
In fact, banking sources told Reuters that the liquidity withdrawal came before a foreign currency auction on Friday.
“The central bank is trying to manage the FX rate using the CRR (cash reserve ratio),” one banker said, adding that the debits had become frequent and over the 27.5% limit.
He said offshore lenders were the most affected on the levies since they don’t operate retail business and are debited from their corporate deposits or borrowings.
The bank is selling forex to importers and individuals with dollar expenses to keep the economy afloat. But it is yet to resume forex sales to investors that have sold assets and need to leave the country.
CBN, last week debited twenty-five banks, to the tune of N459.7 billion for failure to meet their CRR obligations.This follows a similar move in April when the regulator took N1.47 trillion from almost 30 lenders for falling short of cash-reserve and loan-to-deposit ratios
