Banks burden with CRR, other charges, can’t reduce lending rate
Nigerian banks already burden with huge operational costs, including the world’s highest Cash Reserves Ratio (CRR) regime and other regulatory charges are constrained to tinker with lending rate, a bank chief executive has said.
According to the Chief executive of First Bank Adesola Adeduntan, the call for a reduction in interest rate though desirable will further hurt banks’ earnings and business continuity in view of the already huge strains on their costs of doing business in the country.
At a Webinar organised by the Chartered Institute of Bankers of Nigeria (CIBN) on Tuesday, Adeduntan who was represented by Segun Alebiosu, the bank Chief Risk Officer said banks are earning zero income on close to 40 percent of their total assets in terms of depositors’ fund due to regulatory requirements.
He said commercial lenders are required to set aside 27.5 percent of its total deposits as CRR with the Central Bank of Nigeria (CBN), which they earn zero interest, while they are also expected to pay interest on the total deposits from customers.
He said banks are required to pay 1 percent as deposit insurance to the Nigerian Deposits Insurance Corporation (NDIC) and 0.5 percent to the Assets Management Corporation of Nigeria (AMCON) as contributions to resolution cost.
Banks are required to make contributions of 50 basis points of their total assets to the Banking Sector Resolution Cost Fund resides with the AMCON.
All these gobble down on the operational cost of banks, constraining their ability to reduce the lending rates, the bank chief executive said.
Alebiosu was responding to call by the representative of the Nigerian Association of Chambers of Commerce, Industry, Mines, and Agriculture (NACCIMA) who had canvassed a reduction in lending rate as part of measures to curb loan defaults and the incidents of Non-Performing Loans (NPLs) in the banking sector.
Margaret Orakwusi of NACCIMA said with the impact of the coronavirus, many businesses are going through strains and their cases are compounded with high-interest rates, which if banks agree to slash could discourage loan default and high NPLs.
“To discourage default in loans and high NPLs, banks should reduce interest rate,” the NACCIMA representative said at the Webinar.
Nigerian banks have often complained of huge operational costs, including the environmental impact on their earnings and sustainability, these they said contributed to the high interest rate regime in the country.#GFD