CBN’s CRR policy costs Banks trillions — Report

By Mariam Abeeb

Nigeria’s banking sector may be losing trillions of naira yearly due to the Central Bank of Nigeria’s high Cash Reserve Ratio policy, a new report by investment banking and research firm, Chapel Hill Denham, has revealed.
The report, titled “The Nigerian Banking Paradox: High Returns, Deep Discounts,” stated that despite Nigerian banks posting some of the strongest returns on equity in Africa, they still trade at deep discounts compared to counterparts in South Africa and Morocco.
According to the analysts, the development is largely driven by macroeconomic concerns and restrictive regulatory policies imposed on the sector.
The firm noted that the Cash Reserve Ratio framework, initially introduced to manage liquidity, tame inflation and stabilise the naira, is now creating long-term costs for banks and the broader economy.
The report described Nigeria’s banking regulatory environment as “restrictive,” stressing that it places severe liquidity constraints on deposits and weakens banks’ lending capacity.
It stated, “Our analysis reveals that Nigerian banks operate under a uniquely restrictive regulatory perimeter, including a 50 per cent cash reserve ratio and mandatory consolidation of all cross-border operations, that structurally suppresses current reported returns while creating asymmetric upside potential.”
The analysts added that the framework was introduced in response to the 2008/2009 banking crisis and persistent currency volatility, but argued that the economic realities surrounding the policy had changed significantly.
“The cost-benefit calculus has shifted materially as Nigerian banks have taken on a wider regional role,” the report added.
According to the firm, for every N100 deposited, banks are required to keep N50 in non-interest-bearing reserves with the Central Bank of Nigeria while still paying between five and 12 per cent interest to depositors.
The report estimated that applying a 15 per cent net interest spread translates to an annual earnings drag of about N2.5tn, representing nearly 60 per cent of the sector’s gross earnings as of the third quarter of 2025.
The analysts further warned that the opportunity cost created by the current CRR regime was discouraging lending activities and weakening banks’ ability to create credit within the economy.