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Fitch Ratings Warns That Nigerian Banks Need More Liquidity

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International agency Fitch Ratings yesterday said Nigerian banks needed more liquidity following the withdrawal of public sector deposit.

The agency said the withdrawal of the estimated N1.3trillion from the banks as a result of the implementation of the Treasury Single Account (TSA) meant that they lost 10 per cent of their deposits.

The Central Bank of Nigeria (CBN), it said, should boost the banks’ liquidity.

The agency also said the Monetary Policy Committee (MPC)’s decision that cut Cash Reserve Ratio (CRR), a mandatory reserve requirement on all local-currency deposits, to 25 per cent from 31 per cent to ease liquidity pressure, stimulate new lending and boost economic growth will not add liquidity to the banking system because it releases no additional foreign currency.

The agency said the banks are low on dollars. It said: “Lower reserve requirements will not offset the tighter foreign currency liquidity at banks. A currency split of public-sector deposits is not disclosed but in our opinion, foreign currency deposits are substantial, held up by oil-related deposits. The centralising of public-sector and government-related foreign currency deposits at the TSA has made it increasingly difficult for commercial banks to meet customer demand for foreign currency,” it said.

Fitch said foreign currency availability was already strained in 2015 due to falling oil revenues, central bank action to defend naira depreciation and heightened negative investor sentiment towards emerging markets.

It said warnings throughout the year that JP Morgan intended to remove Nigeria from its Emerging Markets index, which occurred in mid-September, also triggered heavy foreign currency outflows as investors sold Nigerian securities.

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