A new report by Renaissance Capital has raised alarm over a deepening liquidity crisis in Nigeria’s banking sector, following the Central Bank of Nigeria’s (CBN) implementation of a 50% Cash Reserve Ratio (CRR). Analysts argue the move, though intended to stabilise the economy, may be counterproductive to the country’s goal of becoming a $1 trillion economy by 2030.
The report, released ahead of the upcoming Monetary Policy Committee (MPC) meeting, describes the CRR—reportedly the highest in the world—as a severe constraint on bank lending. According to Renaissance Capital, the policy is clashing with the CBN’s recent push for bank recapitalisation, creating what the firm called a “conflicting policy stance.”
“The goal of recapitalisation is to boost lending capacity, yet the 50% CRR drains liquidity, limiting the very credit expansion the policy aims to achieve,” the research note stated.
CRR refers to the percentage of total customer deposits that banks must hold with the central bank, effectively removing those funds from circulation. With the CBN now requiring banks to maintain 50% of deposits as reserves and an additional 30% as a liquidity buffer, lenders are left with only 20% of customer deposits for actual lending—well below the regulatory benchmark Loan-to-Deposit Ratio (LDR) of 50%.
The report warns that this policy mix is forcing banks to focus on maintaining their balance sheets instead of growing their loan portfolios, which could hinder economic expansion.
Renaissance Capital further estimates that Nigerian banks lost ₦840.2 billion in income in the 2024 financial year due to the new CRR framework—nearly equal to the total losses of ₦862.1 billion incurred under the previous discretionary CRR system over four years (2020–2023).
“This data shows the current policy is proving more damaging to bank profitability and liquidity than the earlier system,” the analysts noted.
While some banks appear to be sustaining higher LDRs, the report suggests they may be doing so using deposits sourced from international operations that are exempt from the domestic CRR policy.
Critics argue that unless the CRR is revised, it may end up stifling the very economic growth it was meant to support. The report concludes that Nigeria’s ambitious economic targets require coherent and supportive monetary policies—not ones that work at cross-purposes.
As the CBN prepares for its next MPC meeting, market watchers and financial institutions will be paying close attention to any potential policy adjustments aimed at easing the strain on Nigeria’s banking sector.
