Nigeria’s banking sector may be losing about N2.5 trillion annually due to the Central Bank of Nigeria’s (CBN) high Cash Reserve Ratio (CRR), according to a new report by investment banking and research firm, Chapel Hill Denham.
The report, titled “The Nigerian Banking Paradox: High Returns, Deep Discounts,” said Nigerian banks continue to trade below the value of their African counterparts despite recording strong returns on equity.
According to the report, the CBN’s 50 per cent CRR policy remains one of the biggest constraints on bank profitability, as it compels banks to keep a significant portion of customer deposits with the apex bank without earning interest.
The analysts explained that for every N100 deposited by customers, banks are required to set aside N50 as non-interest-bearing reserves while still paying depositors between five and 12 per cent interest.
They estimated that with an average 15 per cent net interest spread, the policy creates an annual earnings drag of about N2.5 trillion, representing nearly 60 per cent of the banking sector’s gross earnings as of the third quarter of 2025.
The report stated that while the CRR policy was introduced to manage liquidity, curb inflation and stabilise the naira, it now appears to be weakening banks’ lending capacity and reducing credit creation in the economy.
Chapel Hill Denham noted that Nigeria’s CRR remains significantly higher than those of many African countries and inflation-targeting economies globally.
It said South Africa currently operates a CRR of 2.5 per cent, Egypt 16 per cent, Kenya 4.25 per cent, Ghana 15 per cent, while Morocco has reduced its ratio to zero per cent.
The analysts added that a reduction of Nigeria’s CRR from 50 per cent to 30 per cent could release about N8 trillion into the banking system and potentially generate an additional N800 billion in annual pre-tax profits for banks.
The report further noted that investors appear to be pricing Nigerian banks as though the current CRR framework would remain unchanged despite expectations of future easing.
At its February 2026 monetary policy committee meeting, the Central Bank of Nigeria retained the CRR for Deposit Money Banks at 45 per cent, Merchant Banks at 16 per cent and 75 per cent for non-TSA public sector deposits.
Members of the committee defended the policy, citing concerns over inflation, liquidity management and exchange rate stability.
The apex bank has consistently maintained that tight CRR levels are necessary to preserve macroeconomic stability and control excess liquidity within the financial system.
