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CBN returns N951m to banks as deposits shrink by N95bn

By Babajide Komolafe

LAGOS—THE banking industry on the whole suffered a total of N95 billion declines in deposit in March alone prompting the Central Bank of Nigeria, CBN, to return N951 million cash reserve requirement, CRR, credit to banks last week.

This contrasts with the N130 billion increase in deposit and N1.3 billion CRR debit  experienced by the industry in February.

Vanguard reported last week that depositors were withdrawing their deposits and investing same in bonds and other money market instruments in Ghana and other neighbouring countries though the monetary authorities would want Nigerians to believe otherwise.

Meanwhile, the fall in deposit rates in the industry assumed a new dimension last week as some banks have started crashing interest rate on existing fixed deposits.

The CRR is the portion of total deposits banks are required to keep in liquid cash and is at present one per cent for banks in Nigeria. Consequently, the CBN at the end of every month calculates the increase or decrease in the deposit of banks and debits or credits them accordingly.

This means that if the deposit of a bank increases by N100 billion, the CBN will debit the account of the bank for one per cent of this increase i.e. N1 billion. But if the deposit of the bank reduces by N100 billion, the apex bank will credit the account of the bank by N1 billion.

Declines in banks deposit

Vanguard investigations revealed that on Friday last week, the CBN credited banks with N951 million, which is one per cent of N95 billion. This implies that on the average the banking industry suffered N95 billion declines in deposit.

This is the first time since the second quarter of 2009, that the industry would experience a CRR credit and hence decline in deposit. In February the industry experienced CRR debit of N1.3 billion indicating that banks deposit grew by N130 billion. In January the industry experienced CRR debit of N1.48 billion indicating a N148 billion growth in banks’ deposits during the month.

The decline in banks’ deposit was occasioned by the sharp decline in deposit rates in the industry, a development triggered by the over N600 billion idle funds in the industry. Interest rates on time deposits which ranged from 8.0 per cent to 14 per cent in last quarter of 2009 had crashed to 3.0 per cent in March.

The result is that banks’deposits have become less attractive in terms of returns compared to other investment options hence depositors are withdrawing their funds from banks and investing in the stock market or giving it to finance companies or taking it out of the country to neighbouring West African countries where deposit rates hover around 14 per cent.


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