Union Bank of Nigeria reported its total cash reserve requirement increased from N296 billion as at December 2019 to N484.5 billion as at June 30th, 2020.
This suggests the central bank has debited Union Bank N188 billion in additional CRR between January and June 2020. The bank reported a total customer deposit of just over N1 trillion thus nearly 50% of its deposits are with the CBN and cannot be accessed by the bank.
This was contained in the 6 months interim results published by the company.
Union Bank CRR Debits
The central bank of Nigeria increased its cash reserve requirement (CRR) to 27.5% from 22.5% at the monetary policy committee meeting held in January 23rd to 24th. The CRR is the amount the CBN debits from banks accounts in compliance with its monetary policy objective of mandatorily keeping cash on behalf of banks. The amount is not available for banks to use.
According to Union Bank, the CBN “had restricted balances” of N484.5 billion (December 2019: N296.043billion) with the Central Bank of Nigeria (CBN) as at 30 June 2020, representing the CRR debited in the period under review.
The bank reported a CRR of N365.8 billion suggesting an additional N118.7 billion was debited between April and June 2020 compared to N70 billion in the prior quarter.
Nairametrics reported in April that the central bank debited N1.4 trillion in CRR from banks with Union Bank debited by about N49 billion. The CBN also debited banks in May and in June.
The move shocked bankers who had expected the CBN to taper down on its tight monetary policies considering the economic headwinds. This was very well before the COVID-19 virus exploded worldwide. The CBN had attributed the reason for the CRR debits to recent inflationary pressure in the economy.
2020 Q2 Results
Meanwhile, in the bank’s quarter ending June 2020 results, it reported a pre-tax profit of N5.1 billion compared to the N6.2 billion reported same period in 2019.
- Loan impairment was just N680 million for the quarter suggesting most of its loan obligations were honoured by its borrowers.
- The banks earning per share for the 6 months ending June 2020 was 37 kobo unchanged from same period last year.
According to the Bank’s CEO Emeka Emuwa, “The impact of COVID-19 and associated movement restrictions on the Bank and the wider economy has been broad. The total lockdown of major commercial centers Lagos, Abuja and Ogun and partial lockdowns across the country, slowed business operations in Q2 2020. The slowdown limited growth in key income lines including fees and commissions and cash recoveries.”
Despite CRR debits, Nigerian Banks record higher net interest income
Banks are recording higher net interest income, despite the CBN’s frequent CRR debits chalking off significant amounts of their cash.
Some of the top banks in Nigeria posted a total net interest income of N403 billion in the third quarter of 2020 compared to N369.5 billion in the same period in 2019.
In the first 9 months to date, the banks have reported a combined net interest income of N1.2 trillion compared to N1.1 trillion same period last year.
Nairametrics collated these figures from the following banks, FBNH, UBA, GT Bank, Access Bank, Zenith Bank, Fidelity Bank, Stanbic IBTC, Sterling Bank, and Union Bank. The banks recently released their third-quarter interim results.
Deposit money banks have complained bitterly over the central bank’s frequent CRR debits chalking off significant amounts of cash that they could have earned on.
A Nairametrics report indicates banks suffered CRR debits of over N1.9 trillion in the second quarter of 2020, taking the total amount of customer deposits held by the CBN at about N6.5 trillion.
The figure is likely higher now as more CRR debits have occurred in the third quarter of the year. Nairametrics reported banks were debited N226 billion CRR debit in a recent update provided by reliable sources.
However, as the above report indicates, the banks still earned more this year compared to 2020. Where banks may have suffered dips is in net interest margin, a measure of the percentage of income banks earn after netting off the cost of funds.
However, this has also been largely mitigated by low deposit rates even as banks maintain most of their lending rates.
Despite the rise in net interest income for the collection of banks under our review, some banks individually faired worse in 2020 compared to 2019. FBNH, Stanbic IBTC, and Access Bank all recorded lower net interest income in the first 9 months of 2020 compared to the same period in 2019. Significant gains over the prior year were however recorded with the other banks.
What is driving Margins
Banks are recording higher net interest income largely because interest rates on deposits are at near-record lows.
This drive down in the cost of funds helps boost the income of banks because they are also yet to significantly drop their lending rates.
In the first 9 months of the year, the banks reported total loans and advances of N1.6 trillion, 14% higher than the N1.4 trillion reported at the end of 2019.
Banks have also reported generally improved pre-tax earnings, posting a combined N737 billion in the first 9 months of 20120 compared to N723 billion in the same period last year.
The better than expected results has triggered a boost to their share price. Banks have also seen their share price rally in recent weeks as investors finally recognize their low valuations amidst strong earnings.
The Banking sector index is up 14.72% year to date and only fell last week after investors embarked on cashing out their profits.
Explore Data on the Nairametrics Research Website
AXA Mansard Insurance Plc set to raise company’s share capital to N18 billion
AXA Mansard Insurance Plc. has announced its plans to embark on a share consolidation and issuance of bonus shares exercise.
AXA Mansard Insurance Plc. has announced its plans to embark on a share consolidation and issuance of bonus shares exercise required to take the company’s share capital to N18 billion.
This announcement is contained in a notice, signed by the firm’s Secretary, Mrs. Omowunmi Mabel Adewusi and sent to the Nigerian Stock Exchange market, as seen by Nairametrics.
What you should know
The corporate decision is part of the resolutions of the Board of Directors of AXA Mansard Insurance Plc. subject to shareholders’ approval and other regulatory requirements.
Some key highlights of the notice are:
- That the Management of the Company is set to carry out the share consolidation and issuance of bonus shares exercise required to take the Company’s share capital to N18billion.
- That the bonus issue exercise may be done at once or in phases, provided the Company meets the September 30, 2021 deadline set by the Commission.
- That subject to regulatory approvals, the Company would hold an Extra Ordinary General Meeting to obtain shareholders’ approval of the Share consolidation and Bonus Share
- That the Board and Management be and are hereby authorized to appoint such advisers, professionals, and parties that they deem necessary, upon such terms and conditions that the Directors may deem appropriate with regard to the aforementioned Share Consolidation and Bonus Issue Exercise.
- That the Board of Directors be and are hereby authorized to take all steps and do all acts that they deem necessary for the successful implementation of the above stated resolutions.
Why it matters
The corporate action is a deliberate and strategic way of meeting up with the new and revised minimum paid up share capital requirements for composite firms, which is currently pegged at N18 billion.
CRR Compliance: Banks suffer another N226 billion in CRR debits
Nigeria banks have had their vaults debited of N226 billion by the Central Bank of Nigeria in the apex bank’s latest CRR sequesters.
Deposit Money Banks (DMBs) have collectively suffered a debit of N226 billion in compliance with the Cash Reserve Requirements (CRR) fixed by the CBN.
According to a reliable source, the debit occurred in the week ended November 20, 2020. This follows a whopping N917.5 billion debit recorded a month ago as reported by Nairametrics. The central bank imposed CRR sequesters on banks that fail to meet its minimum lending targets as a percentage of deposits.
In its September monetary policy communique, the bank claimed its policy measures have led to increased lending in the economy emphasizing the need to double down on it.
“The Differentiated Cash Reserves Requirement (DCRR) and the minimum Loan-to-Deposit Ratio (LDR), have ensured a significant stream of credit to the real economy. As at end-August 2020, aggregate bank credit had risen by about N3.7 trillion relative to its level in May 2019, when the LDR policy was introduced. The outlook for credit to the economy remains positive given that these policies are still in place and, importantly, that the banking industry continues to be resilient.”
What you should know
- Out of the N226 billion debited for November 2020; top five (5) banks in Nigeria – FUGAZ, bore the biggest brunt, with a combined debit of N137.5 billion, implying that the top 5 banks accounted for 60.8% of the total debit for this month.
- The break down of the debit for the top five banks are; GT Bank (N59.5 billion), Zenith Bank (N30 billion), FBN (N20 billion), Access (N18 billion), and UBA (N10 billion).
- Nairametrics had earlier reported that CBN increased the CRR in January by 5% to 27.5% to address monetary-induced inflation, whilst retaining the benefits from the CBN’s LDR policy.
- Cash Reserve Ratio (CRR) is a specified minimum fraction of the total deposits of customers, which commercial banks have to hold as reserves either in cash or as deposits with the central bank. CRR is set according to the guidelines of the central bank of a country.
Explore Data on the Nairametrics Research Website