CBN Slams Zenith, UBA, GTB, First Bank, and 6 Other Banks with N1.62trn Debit for Failing to Meet Cash Reserve Requirements

The Central Bank of Nigeria (CBN) has debited a total of N1.62 trillion from nine Nigerian banks for failing to meet the required Cash Reserve Ratio (CRR). The banks penalized include Zenith Bank, United Bank for Africa (UBA), Guaranty Trust Bank (GTB), and First Bank, alongside six others. 

“These penalties are part of the regulator’s efforts to enforce compliance and maintain a stable financial system.”

The CBN requires commercial banks in Nigeria to maintain a certain level of funds in a reserve—known as the Cash Reserve Ratio (CRR). The CRR is a critical tool used by the CBN to control the money supply in the economy and ensure stability. 

• Zenith Bank: Zenith Bank, one of the largest banks in Nigeria, has been debited for not meeting its CRR requirement.
• United Bank for Africa (UBA): The UBA has also been debited due to failure to meet the cash reserve regulations set by the CBN.
• Guaranty Trust Bank (GTB): The third bank in this list, GTB has been penalized by the CBN for non-compliance with the CRR requirement.
• First Bank: One of the oldest banks in Nigeria, First Bank, has been debited for failing to meet its CRR requirement.

This regulatory step by the CBN is aimed at ensuring banks do not fall below the minimum CRR requirement, thus promoting fiscal responsibility and aiding in maintaining financial stability within the Nigerian banking system.

Banks running short of cash with CBN

In an unexpected turn of events, several top-tier banks have evidently fallen short of meeting the required cash reserve requirements set by the Central Bank of Nigeria (CBN). This shortfall has led to CBN debiting an estimated N1.62 trillion from the accounts of these banks. 

According to the rules set by the CBN, every commercial bank operating in the country is mandatorily required to keep a proportion of its demand and time liabilities as cash reserves with the central bank. The cash reserve requirement (CRR) not only maintains liquidity within the banking system, but it also acts as an effective instrument of monetary control for the CBN. 

However, the ongoing liquidity squeeze underscores the challenge many banks are experiencing in mobilizing sufficient deposits to meet the reserve prerequisite. In turn, it raises questions regarding the long-term sustainability of the banking sector’s financial health. Therefore, the imposition of the cash reserve ratio serves as an effective regulatory measure to curb any potential financial instability.

In light of these recent debits imposed by the CBN, there can be severe implications for the affected banks. It not only cripples their ability to extend credit to customers but also puts a constraint on their operational efficiency.

Top banks debited by CBN

CBN debited Zenith Bank N580.49 billion as of June 30, 2023, at N2.25 trillion from N1.67 trillion in the 2022 financial year.

UBA was debited about N356.37 billion by CBN in the first six months of 2023 to N1.64 trillion from N1.28 trillion reported in the 2022 financial year.

GTBank maintained its CRR with CBN at N1.22 trillion, representing an N208.5 billion increase from N1.01 trillion in 2022.

FBN Holdings added N199.91 billion to its CRR with CBN in the period under review.

GTBank explained that the pressure from competition and the need to keep the mandatory CRR debits led the Group to maintain an average liquidity ratio of 36.6% during the period under review.

First Bank’s CRR with CBN stood at N1.76 trillion at the end of June 2023 from N1.56 trillion in 2022.

Unity Bank reported about N3.66 billion CRR with CBN to N69.05 billion as of June 30, 2023, from N72.71 billion in the bank’s 2022 financial statement.

Currency in circulation rises to N2.7 trillion

CBN’s move comes as the currency in circulation rose to N2.7 trillion in August 2023.

Data from the CBN as of Thursday, September 21, 2023, shows the currency in circulation hit about N2.7 trillion at the end of August 2023.

In February 2023, the country had a mere N982.1 billion as currency in circulation following the naira redesign policy of the CBN.

The amount has increased since the policy ended, and cash mopped up from the system returned.

The money in circulation in Nigeria dropped by about 235.03% to N982.1 billion at the end of February this year from N3.29 trillion at the end of October 2022, when CBN announced the naira redesign policy.

CBN data shows that it mopped up N2.3 trillion from circulation during the period under review.

Punch reports that the apex bank defines money in circulation as currency outside the banking system and the vaults of the CBN.

It means all legal tender currencies are in the hands of the public and commercial banks’ vaults.

Also, Banks’ borrowings from the Central Bank of Nigeria surged in September from N322.97 billion in August to N3.03 trillion, an increase of 835%.

Banks borrow N3 trillion from CBN in 22 days

Banks’ borrowings from the CBN surged in September from N322.97 billion in August to N3.03 trillion, an increase of 835%.

Similarly, the CBN has invested almost N10 trillion in different sectors of the Nigerian economy over the years.

According to data from CBN, from early September to Friday, September 22, 2023, total banks’ borrowings from the apex bank stood at N3.028 trillion.

The banks accessed the borrowings through the Lending Facility of the CBN. The Standing Lending Facility (SLF) is a short-term credit that commercial banks draw from when they need short-term customer withdrawals.