27 January 2014

Nigeria: Banks to Face Tougher Regulations in 2014

As operators in the banking sector continue to brood over last week's imposition of a 75 per cent Cash Reserve Requirement (CRR) on public sector deposits, a report has indicated that banks will face a more 'hostile' regulatory environment this year. > The report, however, pointed out that the latest monetary tightening measure brought forward the pain banks were to face in 2014.

CSL Stockbrokers Limited, a division of First City Monument Bank (FCMB), United Kingdom, stated this in a report obtained at the weekend.

The central bank's Monetary Policy Committee (MPC) had at the end of its meeting last Tuesday raised banks' CRR on public sector deposits from 50 per cent to 75 per cent. It, however, left the CRR on private deposits and other monetary policy tools unchanged. > > Banks had been grappling with the challenges posed by policies such as the increase in the Asset Management Corporation of Nigeria levy, the removal of ATM usage cost previously charged on customers, reduction in the Commission on turnover (COT) charged on current accounts and the increase in interest rate on savings accounts.

But the CSL report said: "We expected this to occur at some point in 2014 - and still see a move to 100 per cent this year. Raising the CRR reduces the appeal of public sector deposits to commercial banks, which can now deploy only a quarter of that money, before paying the administrative costs associated with managing it. "If the CRR on public sector funds rises to 100 per cent this year, in line with our expectations, then the incentive for banks to take public sector deposits will be eliminated."

According to the central bank data, total public sector deposits (federal government, states and LGAs) had reached N4,018 billion ($25.1 billion) in November 2013. > Nevertheless, a separate report by the Ecobank Group noted that the monetary policy measure reinforced the need for banks to increase private sector deposits to mitigate the outflow of public sector funds.

It pointed out that the CBN had become increasingly concerned about the rise in liquidity, the huge cost of its Open Market Operations (OMO) as well as the fungibility of its liquidity management policies due to increased interbank liquidity, which had offset the impact of initial introduction of 50 per cent CRR on public sector deposit.

"By raising the CRR on public sector deposits, the CBN aims to slow growth in money supply and thereby reduce inflationary pressures to sustain a comfortable level of inflation around high single digits," it added.

Furthermore, the Ecobank report stated that a further fall in oil revenue was a key risk, adding that the recent fall in the Excess Crude Account balance to $2.5 billion on 17 January, from $11.5 billion in December 2012 highlights high fiscal indiscipline and leakages.

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