Nigeria’s First Bank to cut deposit rates

*Non-remittance of NNPC funds earned 2 banks fine

* Central bank fine First Bank 1.8 bln naira

*UBA to cough out 2.9 bln naira fine

First Bank, one of Nigeria’s biggest banks may crash its deposit rate to below 5 percent in line with the falling cost of borrowing in the interbank market, which plummeted to 1 percent last week, but climbed to 7 percent at the close of business on Friday. Overnight borrowing among banks opened at 4 percent on Monday after the central bank injected additional funds into the banking system from their deposits fro forex purchase last week.

Sources said the commercial lender currently has a liquidity ratio of about 50 percent, 200 percentage points above the 30 percent stipulated by the central bank.

Emefiele, CBN chief

The bank customers may be getting lower returns on their savings deposits as from middle of October in line with its liquidity position. Sources said the plan was to reduce cost of borrowing from customers and be able to enhance returns on investment to its shareholders.

The slash in deposit rate by First Bank has nothing to do with the fine imposed on it by the central bank, another source said.

There was a report in one of the dailies on Monday which claimed the central bank has sanctioned the bank for refusal to remit about 37.55 billion naira belonging to the state-owned energy company Nigerian National Petroleum Corporation (NNPC).

The report stated that First Bank was fined 1.87 billion naira, which represents five percent of the NNPC money it refused to remit to the Treasury Single Account (TSA) as directed by the federal government on September 15.

According to the report, another tier-1 bank, United Bank for Africa (UBA) was also sanctioned for concealing a portion of the energy corporation’s fund totaling 58.84 billion naira. UBA was said to have been fined 2.94 billion naira for also refusing to remit the deposit of the energy firm into the TSA as at when directed.

Most Nigeria’s commercial lenders depend largely on public sector funds, while the transfer to the TSA last month led to shortage of funds in the banking system, leading to jump in the cost of borrowing at the interbank money market.

At the peak of the transfer of public sector funds to the TSA, overnight placement was quoted at 200 percent, while the interbank market frozen for over a week.

However, in a move to save the banking system from total collapse, the central bank reduced the cash reserves ratios (CRR) from 31 percent to 25 percent o free some money for the banks.

Consequently, about 700 billion naira was refunded to some banks after the slash in CRR, leading to crash in interbank lending rate to 1 percent early last week.