MPC surprises with CRR harmonisation
· The Central Bank of Nigeria (CBN) concluded its two day policy meeting yesterday afternoon leaving Monetary Policy Rate (MPR) and its symmetric corridor at 13% and 200bps respectively by unanimous vote. However, the MPC surprised on CRR, electing to harmonise both public (75%) and private (20%) to a single 31% of banking sector deposits by a 9-2 vote. The apex bank noted the need to prevent moral hazard problems by private participants by the discriminatory CRR regime and that the current CRR regime constrained the efficacy of monetary policy.
Higher share of private deposits implies net tightening
While on the face the CRR harmonisation appears as an easing, our analysis churns out a contrary view. Importantly, the sequestration of FGN deposits on implementation of TSA in February 2015 shrank public sector deposits (-15pps MoM) to 10% (2014 average: 22%) of total banking sector deposits of N13 trillion. Further aided by slower fiscal revenues, our analysis show that blended CRR to total deposits has averaged 25% since the end of February vs. 28% average over 2014. With private sector deposits at 91% of banking system deposits as at April 2015, the net impact of the move to ‘harmonise’ CRR effectively raises the weighted average rate to 31%. Consequently, our analysis suggests that the ‘CRR merger’ should translate into net debit to the tune of nearly N800 billion. With bill maturities of N581 billion in June (OMO: 37%), the net debits imply less liquid financial conditions over the coming weeks suggesting greater scope for yield uptick in the near term.
Figure 1: Blended CRR (Old and New) and Private sector deposits (% of total deposits)
Source: CBN, ARM Research
Varied impact across coverage banks
· Across our banking coverage, the MPC action holds divergent implications as the cutback in public CRR implies a ‘tactical easing’ whilst on the counterfactual for banks with larger private sector deposits, the raised CRR poses fresh liquidity concerns. On an absolute basis, FBNH and Zenith with N563 billion and N508 billion in restricted should earn some reprieve whilst UBA and Diamond could face a higher deposit cull by the CBN on the raised private CRR using FY 14 numbers.
Figure 2: Restricted deposits to total deposits
Source: Various bank financials, ARM Research
