By Arinze Uzo
Business News Correspondent
The Nigerian banking sector may soon face significant liquidity challenges following the Central Bank of Nigeria’s (CBN) decision to enforce a stringent 50% Cash Reserve Ratio (CRR) on commercial banks, according to a new report by financial analysts. The policy, aimed at mopping up excess liquidity and reining in inflation, is now drawing sharp criticism for its potential to choke credit flow and destabilize an already fragile economy.
Under the CRR policy, banks are required to keep 50% of their customer deposits with the CBN, effectively locking away a substantial portion of funds that could otherwise be used for lending and investment. Analysts argue that while the intention may be to curb inflation and stabilize the naira, the unintended consequence is a tightening of liquidity that could hurt businesses and consumers alike.
“This is an extremely aggressive monetary stance,” said Adetokunbo Oladele, a financial analyst with Sterling Advisory. “At 50%, the CRR is among the highest in the world. Banks are being starved of the very lifeblood they need to support credit expansion, which is crucial for economic growth.”
The report noted that banks have already begun adjusting to the tighter liquidity environment by raising lending rates, limiting credit availability, and prioritizing low-risk government instruments over private-sector lending. Smaller and medium-sized enterprises (SMEs) are expected to be the hardest hit, as commercial banks become more selective in disbursing loans.
According to the analysts, the policy may also have ripple effects across the financial system, including reduced profitability for banks, a slowdown in economic activities, and increased borrowing costs for businesses. Already, several banks have begun cutting back on retail lending and consumer credit products, citing tighter liquidity conditions.
Bank executives have expressed concerns privately, noting that the new CRR regime creates an uneven playing field and undermines financial intermediation. A senior executive at a Tier 1 bank, who spoke anonymously, said: “This level of reserve requirement is unsustainable. It weakens our ability to support the real sector and could have long-term effects on financial system stability.”
The CBN, however, has defended the policy, saying it is a necessary step in its broader effort to stabilize inflation, support the naira, and curb excess money supply in the economy. In a recent statement, CBN Governor Olayemi Cardoso said the move is “part of a strategic realignment to ensure monetary discipline and curb speculative capital movement.”
Economists are calling for a more balanced approach, urging the CBN to reconsider the CRR or provide additional liquidity windows for banks to maintain lending capacity. Some have suggested a differentiated CRR model, where banks with higher lending to the real sector enjoy lower reserve requirements as a form of incentive.
As the policy takes full effect, all eyes will be on upcoming liquidity reports and lending data to measure its true impact. For now, banks are bracing for tighter conditions, and analysts warn that unless mitigated, the 50% CRR may tip Nigeria’s fragile economy further toward contraction.
