The CBN on Tuesday announced it was harmonising the public and private sector CRR to 31%. Analysts have since then been trying to analyse and interpret what it will actually affect banking sector deposits. However, an article from Thisday tries to explain the impact of the CRR on banking deposits.
The article sights a report by WSTC Financial Services which uses a quite interesting analogy to describe what the CBN had actually done. The company says whilst the harmonisation may have looked like an easing of liquidity, it probably is not and likened it to Michael Jackson’s famous moonwalk dance.
The moonwalk dance had Michael Jackson sliding backwards even though he was facing forward suggesting that was perhaps what the CBN just did. Interesting analogy don’t you think?
Excerpts of the article below;
“While the move by the apex bank gave an appearance of a leaning towards monetary easing, we will like to describe it using Michael Jackson’s moonwalk dance in which the dancer’s steps resulted in a movement in the opposite direction of where he was believed to be facing.
“Although the decision of the apex bank comes with an appearance of monetary easing, a careful analysis of the impact of the policy shows that the new CRR structure will result in a net aggregate debit, i.e. monetary tightening, on the financial system rather than monetary easing as widely believed by many analysts.”
“The larger the exposure of a bank to public sector funds, the lower the ‘net debit’ impact of the new CRR structure on the bank’s total deposits. Suffice to say that implicit in this is the fact that the harmonisation of CRR may ultimately result in a ‘net credit’, in the interim, for banks holding considerable portion of public sector funds on their balance sheets,”
“We believe that the net effect of the new CRR structure will further weaken earnings in the banking industry through higher cost of fund and reduced ability to earn interest income from liability generation. We also expect this scenario to further dampen market expectations about corporate earnings within the industry,” they noted further.
Watch Moonwalk Video