Nigeria’s banking sector is grappling with a deepening liquidity crisis following the Central Bank of Nigeria’s (CBN) imposition of a 50% Cash Reserve Ratio (CRR), a policy that Renaissance Capital warns could derail the country’s $1 trillion economic ambition by 2030.
In a recent research report, Renaissance Capital described the 50% CRR—now among the highest globally—as a major constraint on banks’ ability to lend, warning that it contradicts the CBN’s simultaneous push for bank recapitalisation. While recapitalisation is meant to strengthen banks’ lending capacity, the high CRR significantly restricts liquidity, undermining the policy’s purpose.
“With CRR at 50% and liquidity ratio at 30%, banks are left with just 20% of customer deposits available for lending—far below the 50% Loan-to-Deposit Ratio (LDR) benchmark,” the report noted. The firm observed that some banks have been able to maintain lending levels above 20% only by leveraging deposits from foreign subsidiaries, which are not affected by the domestic CRR.
Renaissance Capital said the CBN’s policy mix has created conflicting incentives: while recapitalisation aims to expand lending, the CRR policy forces banks to focus on balance sheet preservation instead. “Unless adjusted, these measures risk stifling the very growth they were designed to support,” the report warned.
The new CRR regime has also had a significant financial impact on banks. Renaissance estimates that Nigerian banks lost approximately ₦840.2 billion in income in the 2024 financial year alone due to the CRR policy—surpassing the ₦862.1 billion lost cumulatively between 2020 and 2023 under the previous discretionary framework.
“This FY24 loss suggests the 50% CRR regime is even more damaging to banks’ profitability and liquidity than the earlier system,” analysts said, describing the current situation as a move “from frying pan to fire.”
The CRR, which refers to the percentage of a bank’s deposits that must be held with the CBN and not used for lending or investment, was previously applied on a discretionary basis. Its shift to a uniform 50% requirement has sparked sharp criticism from financial experts.
Renaissance called on the CBN to revise its policy stance by lowering the CRR to boost sector liquidity, reduce overreliance on commercial paper for liquidity management, and enhance overall financial efficiency. The firm also recommended complementary regulatory reforms—such as stricter non-performing loan (NPL) disclosure—drawing on Ghana’s recent policy of publishing names of defaulting borrowers in annual reports.
While acknowledging the CBN’s efforts to stabilise the financial system, including restrictions on dividend payments, foreign investments, and executive bonuses, Renaissance stressed the need to give banks “operational breathing space” to implement reforms and support credit expansion.
With the Monetary Policy Committee scheduled to meet in July, stakeholders are watching closely for signs of a potential policy recalibration. Renaissance added that post-recapitalisation, banks—particularly tier-II institutions like Fidelity Bank and FCMB—may undergo share reconstruction to reduce the number of shares in circulation and enhance earnings per share (EPS) and dividend per share (DPS) metrics.
“The next few months will be critical. The CBN must balance its stabilisation goals with the need to ensure banks can fulfill their role in economic development,” the report concluded.
ADEOLA KUNLE
