Manufacturing Industry Faces Uncertainty As Cash Reserve Ratio Soars To N13.81trn, A 45.5% Surge

Manufacturing Industry Faces Uncertainty As Cash Reserve Ratio Soars To N13.81trn, A 45.5% Surge....KINDLY READ THE FULL STORY HERE▶

Amidst concerns about exchange rate volatility prompting multinational companies to exit Nigeria, economic analysts are alarmed by the 45.51% surge in Cash Reserve Ratio (CRR) held by banks with the Central Bank of Nigeria (CBN) in the nine months leading up to September 2023. This increase in CRR, one of the highest globally, is seen as a potential hindrance to economic growth, limiting companies’ access to credit and elevating credit costs…….CONTINUE READING

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The CRR is a mandatory reserve deposit, representing a portion of customers’ deposits that banks cannot use for daily operations and must maintain with the CBN. Financial experts argue that the high CRR in Nigeria has adverse effects on the manufacturing sector’s access to credit, urging the new CBN leadership to implement measures to stabilize the exchange rate and address fiscal challenges, ultimately lowering the CRR’s impact on the economy.

The CBN utilizes cash reserve requirements as a tool for monetary policy to regulate money supply, control liquidity, and manage inflation. During the review period, the Monetary Policy Committee (MPC) raised the CRR to 32.5%, citing inflationary pressures, and has maintained this rate since then.

Financial statements from ten major banks reveal a significant increase in cash reserves, rising from N9.56 trillion to N13.81 trillion, a 45.51% surge in the specified timeframe. This amount constitutes 21.6% of the total customer deposits, which stood at N64.06 trillion during the same period.

Among the banks, tier-1 banks experienced the most substantial increase in cash requirements, with UBA leading the way with a 68.9% surge in CRR. Sterling Bank followed closely with a 62.6% increase, while Zenith Bank, Fidelity Bank, Stanbic IBTC Holdings Plc, and FCMB Group also recorded notable increases ranging from 39.5% to 57.8%.

Economic experts express concern over the impact on the real sector, emphasizing that the presence of high CRR restricts access to credit for businesses. The inefficiency and unnecessary burden on the banking system are highlighted, with calls for measures to stabilize exchange rates and fiscal conditions to reduce the CRR and its adverse effects on the economy.

Ayo Teriba, CEO of Economic Associate, argues that stable exchange rates and fiscal stability are prerequisites for lowering the CRR. He suggests that addressing fiscal instability, particularly removing the Ways and Means on the books of the CBN, would create conditions for easing monetary policy and addressing the current challenges associated with the high CRR.

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