The restricted deposit held by ten banks with the Central Bank of Nigeria (CBN) surged to N17.1 trillion in 2023, marking a substantial increase of 72.7% from N9.91 trillion reported in 2022.
These banks include Zenith Bank Plc, Access Holdings Plc, Guaranty Trust Holdings Company Plc (GTCO), United Bank for Africa (UBA) Plc, Stanbic IBTC Holdings Plc, Wema Bank Plc, FBN Holdings Plc, FCMB Group Plc, Sterling Financial Holdings Company Plc, and Fidelity Bank Plc.
The Cash Reserve Ratio (CRR) set by the CBN at 32.5% in 2023 contributed to this significant rise in restricted deposits. The CRR mandates banks to retain a minimum amount of customer deposits with the CBN, which is not available for their daily operations and carries no interest.
Under this regulation, the CBN aims to regulate the country’s money supply, inflation level, and liquidity. The higher the CRR, the lower the liquidity available to banks for lending and other operations.
In response to inflationary pressures, the CBN’s Monetary Policy Committee (MPC) increased the CRR to 45.00% in 2024. This move aims to curb inflation and maintain economic stability. MPC members emphasized the importance of tightening monetary policy measures to address inflation concerns effectively.
Despite criticisms from banks and shareholders regarding the impact of the CRR policy on profits, the CBN continues to enforce this regulation. The policy has led to reduced net interest income for banks and constrained their ability to use deposited funds for operational purposes.
Leading banks such as Zenith Bank, Access Holdings, and UBA reported the highest restricted deposits with the CBN in their 2023 financial statements. Zenith Bank recorded N3.9 trillion, Access Holdings N3.11 trillion, and UBA N2.69 trillion in restricted deposits.
Shareholders advocate for CBN to pay interest on these mandatory deposits to banks, emphasizing the potential benefits of increased liquidity for banking operations, economic growth, and shareholder returns.
The surge in restricted deposits highlights the ongoing regulatory measures implemented by the CBN to manage liquidity and ensure financial stability in Nigeria’s banking sector.
