A new report by investment banking and research firm Chapel Hill Denham has projected that reducing the Central Bank of Nigeria’s Cash Reserve Ratio, CRR, to 30 per cent could unlock as much as N8 trillion in additional credit for the Nigerian economy and significantly improve the profitability of banks.
The report, titled “The Nigerian Banking Paradox: High Returns, Deep Discounts,” argues that the current high CRR regime is placing a major financial burden on lenders by forcing them to keep large portions of customer deposits with the Central Bank without earning interest on the funds.
Under the current monetary policy framework, Deposit Money Banks are required to maintain a CRR of 45 per cent, while Merchant Banks maintain 16 per cent. Public sector deposits outside the Treasury Single Account structure attract a reserve requirement of 75 per cent. The Central Bank retained these rates during its February 2026 Monetary Policy Committee meeting as part of efforts to control liquidity and sustain tight monetary conditions amid inflationary pressures.
However, Chapel Hill Denham said the policy now appears to be creating unintended consequences for the banking sector and the wider economy. According to the firm, banks lose an estimated N2.5 trillion annually because a significant portion of their deposits is sterilised at the apex bank without returns, even though banks continue paying interest to depositors.
The report explained that the policy reduces banks’ balance sheet efficiency, weakens lending capacity, and limits the amount of credit available to businesses and consumers.
Analysts warned that restricted access to credit continues to affect economic growth, especially for small and medium-sized enterprises that depend heavily on bank financing.
Despite these constraints, the report noted that Nigerian banks remain among the highest return-on-equity performers in Africa. However, many of the banks continue to trade below their true market value due to regulatory pressures, macroeconomic uncertainty, and investor concerns over the prolonged tight monetary stance.
Chapel Hill Denham compared Nigeria’s reserve requirements with other African and emerging economies, describing Nigeria’s CRR as one of the highest globally. South Africa currently operates a CRR of 2.5 per cent, Kenya 4.25 per cent, Ghana 15 per cent, and Egypt 16 per cent, while Morocco reportedly maintains a zero reserve requirement.
According to the analysts, reducing Nigeria’s CRR from current levels to 30 per cent could inject up to N8 trillion into the financial system, increase lending to the real sector, and potentially raise annual pre-tax profits of banks by about N800 billion.
The report also suggested that a more balanced reserve requirement could improve investor confidence in the Nigerian banking sector and stimulate broader economic activities by making more funds available for infrastructure, manufacturing, agriculture, and other productive sectors.
Analysts believe the findings may intensify debate over the balance between monetary tightening and economic growth, especially as businesses continue to face high borrowing costs and limited access to affordable credit.
