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The Central Bank of Nigeria may have sent out a clear indication that it will reduce the savings account deposit rate to 1%. This is based on an excerpt from the Highlights of the Bankers Committee Feedback cited by Nairametrics.

“Rates on Savings account to be reduced to near 1%. CBN advice in this regard to be expected soon.

On OMO: The central bank also declared that the Open Market Operations (OMO) “has now become POISON as against HONEY that it used to be. Banks are enjoined to remove its eyes from OMO and play responsibly.”

The highlight of this bankers committee report (if true) contains some of the harshest motives, actions, and pronouncements of the CBN as it continues to implement its heterodox policies aimed primarily at defending the naira. Nairametrics has not been able to verify the source or authenticity of the purported highlights. 

Last October the central bank restricted OMO directed all banks to exclude individuals and local corporates from investing in Open Market Operations (OMO) auctions with effect from October 23, 2019.

In a circular signed by Director, Financial Markets Department, CBN, Angela Sere-Ejembi, and cited by Nairametrics, the banker insisted that participation of the financial institutions at the auction should be on the proprietary and non-proprietary basis, without the participation of the investors mentioned above.

CBN has in recent weeks dished out policy pronouncements aimed at curbing the negative effects of its OMO policy. In recent weeks it has restricted the participation of banks in the primary OMO market declaring itself a liquidity provider. In a circular released last year, the apex bank also declared that it would provide liquidity (buyback bills) for OMO bills in the event that foreign investors (its primary targets) wish to sell.

What this means: The CBN wants banks to continue to lend money to the retail and SME’s rather than direct most of their funds in risk-free securities like OMO. It believes if banks lend more then that could stimulate growth while reducing money supply and subsequently inflation rate. It is thus likely that the CBN could also increase the bank’s LDR to 70% which is its likely preferred targets. This move could backfire as it is likely to spook foreign investors who may now face a secondary OMO market that will only be financed by the CBN. 

On Savings Deposits: Since then, deposit rates have crashed to as low as 3% while the much sought after treasury bills rate now trade for as low as 5% from about 10% earlier on the year. Thus the CBN’s statement that it will reduce savings rate to 1% is further indication that ordinary Nigerians may face negative real returns on interest rates for some time as the CBN continues with its Heteredox policies.

What this means: With Nigeria’s inflation rate at 12.13% any money left as savings deposit will be eroded at the rates you get (1%) is far less than the inflation rate of 12.13%. The message here is that the CBN wants to bring down the lending rate in the hope that it will drive down the inflation rate. We suggest Investors get their money into investment options that can yield returns about the inflation rate or at least higher than the 3% currently being offered.

On devaluation, the CBN also said (as it has always maintained) that “it will defend the Naira proactively. All those awaiting devaluation will wait in vain.” Foreign investors have remained on the sidelines for months speculating that a devaluation of the naira was inevitable considering some of the latest macroeconomic indicators leaning in that direction. For example, Nigeria’s current account deficit ballooned to $9 billion at the end of the 3rd quarter of 2019 while the external reserves have dropped to $37 billion. The exchange rate has also remained at about $1/N360 for about 3 years one of the longest periods of stability seen in recent times.

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On Merchant Banks: The highlight also indicates the CBN is planning to increase the CRR for Merchant Banks from 2% to 27.5%. It declared that “any merchant bank that can’t cope should surrender their license and opt for commercial banking license.” As of November 2019, Merchant Banks lending to the Private Sector was about N298 billion while its deposits were around N344.3 billion.

Here is an excerpt from the report as seen by Nairametrics.

HIGHLIGHTS OF BANKERS COMMITTEE FEEDBACK

  • Impact of Coronavirus resulting in global oil price nosedive and contraction in our reserves. But he believes this is temporary and enjoins bank to be positive.
  • Devaluation – CBN will defend the Naira proactively. All those awaiting devaluation will wait in vain. 
  • NAME & SHAME ANNOUNCEMENT: Six (6) Banks breached FX rules on using wired funds to finance banned/prohibited items and sanctions/penalties will be passed against: Fidelity, Stanbic, FCMB, FBN, UBA and GTB.
  • Another sets of 14 banks violated FX rules including Access, Ecobank, Fidelity, FBN, FCMB, Polaris, Heritage, GTB, UBA, Zenith etc.
  • The Governor warned seriously that banks should guard their operations seriously and thread cautiously in FX market. That any bank that allows customers to do 3rd party transactions without clear purpose/rationale constitutes contravention with penalties.
  • Continuous reporting of suspicious transactions by banks constitute a breach since the bank knows it is suspicious and it continues to report same to NFIU when it should have dealt with the issue.
  • CRR shall continue at discretionary application and can be as high as 30%/40% if CBN detects that the bank bids for OMO.
  • That OMO has now become POISON as against HONEY that it used to be. Banks are enjoined to remove its eyes from OMO and play responsibly.
  • Desist from taking advantage of CHEAP LIQUIDITY to make illicit profit.
  • CRR of Merchant Banks to move from 2% to 27.5%. Any merchant bank that can’t cope should surrender their license and opt for commercial banking license.
  • LDR adjustments shall now be done to remove all short-tenured facilities granted for 90/180 days.
  • CBN enjoins bank to lend long-term.
  • Rates on Savings account to be reduced to near 1%. CBN advice in this regard to be expected soon.
  • All banks should send sample of Contract Letter issued to outsourced Staff + SLA with the company being used to run outsourced staff.
  • Banks should note and be guided by the CBN circular in respect of laying off staff that is more than 5. This requires CBN notification and approval going forward.

 

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