Nigerian Banks Drop Most in 6 Months on Cash Rule: Lagos Mover

A gauge of Nigeria’s biggest banks dropped the most since July after the nation’s regulator raised the amount of capital lenders must set aside as a buffer against shocks, threatening to curb profit.

The Nigerian Stock Exchange Banking 10 Index retreated 3 percent to 437.64 by the close in Lagos, the commercial capital. The 193-member NSE All-Share Index declined 1.1 percent, the most since Jan. 9.

The Central Bank of Nigeria increased the amount of federal, state and local government deposits that must be held as cash to 75 percent from 50 percent, Governor Lamido Sanusi said yesterday, warning about risks to price stability from excess liquidity in banks. The regulator left its benchmark interest rate at a record high of 12 percent to bolster the naira, which has weakened 2.1 percent since the start of 2012.

“On an aggregate level, we estimate industry 2014 gross earnings to take a potential 110 billion naira ($690 million) annual hit, assuming a 12 percent yield on the newly sterilized deposits,” analysts at Lagos-based Vetiva Capital Management said in e-mailed note. “The impact will vary from bank to bank depending on how much public sector deposits on their books.”

Guaranty Trust Bank Plc, the nation’s biggest lender by market value, declined as much as 5.2 percent and closed 1.9 percent lower at 28.25 naira, giving it a value of 831.4 billion naira. Skye Bank Plc declined 9.1 percent to 4 naira, the most since June 24.

The increase in the cash-reserve requirement for government deposits “will probably result in stock market volatility,” before elections in 2015, Mark Mobius, chairman of Templeton Emerging Markets Group, said in e-mailed reply to questions today.

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