Banks groan under tight regulatory policies

Banks are groaning under the weight of severe regulatory policies put in place by the Central Bank of Nigeria (CBN) to protect the Naira from further decline and arrest the threat of rising inflation which has grown steadily over the last few months to 9 per cent per annum, or almost one per cent higher than the 8.4 per cent at the end of July 2014.

Local banks blame the chief regulator for their disappointing financial fortunes in the second quarter of the year pointing to tight policy and slowing economic growth, indeed the index of national output, GDP, dropped from 6.54 per cent in July 2014 to a poor 3.96 per cent in 2015.

Banks claim that the CBN has been too edgy about inflation and has slammed on the economic breaks resulting in high domestic interest rates which have adversely affected the ability of manufacturers to take on new loans and even repay old ones as is reflected in the gradual rise in banks Non Performing Loans (NPL’s) in the last quarter.

A clearly spooked CBN has had to deploy several measures to hold inflation down and prevent the Naira from taking further beatings in the foreign exchange (FOREX) market.

The CBN’s agitation resulted in the issuance of serial policy circulars, such that 25 circulars followed in quick succession.

Over recent months, the CBN has tightened the system by drawing off huge liquidity from financial markets through the heavy and repeated  sale of treasury bills to banks and other financial intermediaries such as discount houses and pension funds.

The development has drastically reduced the quantity of funds in the vaults of banks which could be used to create risk assets and oil the wheels of business in the economy.

In addition to cash squeeze seem to have also made it difficult for users foreign currency to assess it as scarcity of the local currency results to the high exchange rate which keeps pushing the dollar high against the Naira. For Example, while the dollar sells for N197, it is obtained at the parallel market at N241/$1.

Besides, banks are stressed by the recent ban of assess to foreign exchange by importers of 41items.

The financial institutions also feel that their bottom line is in trouble since such customers will no longer require their services and will try to source their foreign exchange from other sources.

More threatening to the banks, is the speculated that the Federal government has ordered MDA’s including NNPC to move their funds from the financial institutions pending when new boards are constituted in order to ensure accountability and transparency.

This is also a way of clipping the wings of the banks which have over the years taken advantage of these cheap funds to trade and enhance their performance.

Whereas the CRR for public sector funds has been reduced to 31 per cent as a way of harmonising the rates, but many have criticised rationale for increasing private sector funds to 31 per cent, saying it was not in the interest of the economy.

Most DMB’s believe that they would have performed better or attained their short term targets if not for what they describe as ‘unfriendly’ monetary policy, which resulted in the creaming off a substantial part of their revenues.

Hinting the disservice some aspects of the apex Bank’s policies have had on money lenders, Group Managing Director, FBN Holdings, Mr. Bello Maccido, revealed that CBN’s regulation has posed serious challenges to the group, causing a revenue decline of N64billion in the financial year ended 2014. 

According to him, the apex bank’s decision to tinker with the Cash Reserve Ratio (CRR) in 2014 adversely affected the Holdings’ revenue last year, resulting in the sterilization of about N560 billion and a N64 billion fall in revenue to the company.

“Major policies, pronouncements and actions from the Central Bank had a major impact on the operations of the group.

But I will like to say that in spite of that we grew in the year 2014 with numbers that are robust,” he stated. 

He disclosed that the enforcement of the treasury Single Account with 25 per cent of qualified public sector funds withdrawal monthly and the implementation of Basel 2 requirement in October 2014 took its tolls on FBN Holdings’ revenue in 2014.

Mr. Bisi Onasanya, Managing Director, First Bank of Nigeria limited, also expressed displeasure over the CRR on private sector deposits at 50 per cent in Nigeria, saying it was the highest in the world.

He further explained that the high rate was affecting banking operations negatively in the country.

Similarly, Sterling Bank’s Chief Financial Officer (CFO)/Executive Director, Mr. Abubakar Suleiman noted that regulatory headwinds, especially the hike in Cash Reserve Requirements (CRR) on public sector deposits had resulted in severe challenges to banks’ profitability and restricted their lending capacity to finance economic growth.

He argued that the amount of bank deposits that the CBN had sterilized as a result of the CRR on public sector deposits and private sector deposit was “unprecedented” and had constrained banks’ lending capacity.

He pointed out that the deposit with the CBN were non-earning adding that not only does this impact adversely on banks’ bottom line but it also prevents lenders from funding businesses.