Agusto Report: CBN’s Standardised CRR Shook Banks’ Profitability In 2020

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Nigeria’s foremost research house and rating institution, Agusto & Co Limited has disclosed that Central Bank of Nigeria’s (CBN) standardised Cash Reserve Requirement (CRR) of 27.5 per cent had a massive impact on the profitability of merchant and commercial banks in 2020.

According to its flagship 2021 Banking Industry Report, the research house and rating institution stated that the Nigerian banking industry was better prepared in 2020 as it leveraged lessons from the 2016/2017 economic recession, adding that the CBN’s proactive measures in the form of forbearance, enabled banks to provide temporary and time-limited restructuring of facilities granted to households and businesses severely affected by COVID-19.

“Indeed, the pandemic brought to the fore, technology’s crucial role in deepening financial services as some banks recorded as much as a 50 per cent increase in digital banking transaction volumes. However, these gains were limited by the CBN-induced reduction in bank charges, which took effect in January 2020. As a result, electronic banking income declined by 27.3 per cent, accounting for a lower 13.2 per cent (FY 2019: 21.1 per cent) of non-interest income.

The CBN’s policies targeted at lowering interest rates have persisted especially given the dire need to stimulate the economy following adversities created by the pandemic. However, given the need to moderate inflation amid efforts to maintain a stable exchange rate, the Cash Reserve Requirement (CRR) was increased and standardised to 27.5 per cent for both merchant and commercial banks. The standardised CRR was implemented alongside discretionary deductions. As at FY 2020, the Industry’s restricted cash reserves exceeded N9.5 trillion and translated to an effective CRR of 37 per cent”, the report.

– The Sun

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