… banks lost N840bn in one year under new CRR regime
…analysts say liquidity choke threatens credit growth, recapitalisation goals
As Nigeria pushes towards its ambition of becoming a $1 trillion economy by 2030, analysts are raising red flags over conflicting monetary policies that could derail the vision before it takes off.
At the centre of the concern is the Central Bank of Nigeria’s (CBN) decision to raise the Cash Reserve Ratio (CRR) to an unprecedented 50 percent – the highest in the world, even as it has mandated banks to recapitalise in a bid to strengthen their capacity to lend to the real economy.
The policy mix, analysts say, is contradictory: while recapitalisation aims to increase banks’ firepower for credit expansion, the 50 percent CRR effectively sterilises liquidity and leaves lenders scrambling to manage their balance sheets rather than finance growth.
“With CRR at 50 percent and a liquidity ratio of 30 percent, banks are left with only 20 percent of deposit liabilities for lending, well below the regulatory benchmark of 50 percent loan-to-deposit ratio,” analysts at a leading investment bank, Renaissance Capital Africa, said in a recent note. “This structural limitation undermines the very objective recapitalisation seeks to achieve.”
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The CRR is the percentage of a bank’s total customer deposits that must be kept with the central bank in the form of liquid cash and cannot be used for lending or investment.
The liquidity squeeze is already taking a toll on the financial performance of banks. According to the note, banks under its coverage lost N840.2 billion in income in the 2024 financial year alone as a result of the elevated CRR, surpassing the cumulative loss of N862.1 billion recorded between 2020 and 2023 under the previous discretionary CRR framework.
This, analysts argue, is a clear indication that the current CRR regime is proving more punitive than past approaches and could discourage banks from extending credit, especially to small and medium-sized enterprises that form the backbone of the economy.
The situation is even more constrained for domestic-focused banks, many of whom lack the offshore deposit buffers that their international peers use to navigate around domestic CRR requirements. Banks that report higher loan-to-deposit ratios are often doing so using liquidity raised outside the CBN’s regulatory purview, masking the full impact of the liquidity freeze.
The knock-on effects of the CRR policy are beginning to show. With lending capacity reduced, banks are turning to the commercial paper market to manage short-term funding needs, raising overall system inefficiencies and crowding out private sector access to capital.
In addition to the CRR hike, the CBN has rolled out other prudential directives such as suspension of dividend payments, deferred management bonuses, and limits on investment in foreign subsidiaries. While these steps are meant to reinforce the sector’s resilience, analysts say banks require “operational breathing space” to meet these new obligations without stifling credit creation.
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A possible path forward, the analysts suggest, is for the CBN to consider a phased reduction of the CRR to ease liquidity pressures and allow banks to lend more effectively. They also recommend enhancing credit transparency through better disclosure of non-performing loans (NPLs), including publishing the names of delinquent debtors in annual reports, following a model recently adopted by Ghana’s central bank.
Such complementary reforms, the report noted, would support the broader objective of deepening credit markets and restoring confidence in the financial system, without compromising macroeconomic stability.
Nigeria’s target of achieving a $1 trillion economy by 2030 rests heavily on the mobilisation of credit for infrastructure, industrialisation and innovation. Yet, current liquidity constraints mean that banks, key intermediaries in this process, are being forced to adopt defensive strategies.
Unless the policy contradictions are resolved, analysts warn that recapitalisation may achieve little more than boosting book value, while real economy lending continues to lag.
“The CBN needs to align its liquidity management with its growth targets,” one analyst said. “Without such coherence, the trillion-dollar ambition may remain more political slogan than economic reality.”
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