Liquidity Crisis Looms as CBN’s 50% CRR Policy Hits Nigerian Banks – Renaissance Capital

A new report by Renaissance Capital has raised red flags over the Central Bank of Nigeria’s (CBN) decision to impose a 50% Cash Reserve Ratio (CRR) on banks, warning that the policy is choking bank liquidity, stifling lending, and potentially undermining Nigeria’s $1 trillion GDP ambition by 2030.

🔍 Key Findings:

• Liquidity drain: With 50% CRR and 30% liquidity ratio, banks have just 20% of customer deposits left for lending — far below the 50% Loan-to-Deposit Ratio (LDR) benchmark.
• Profit impact: Banks reportedly lost ₦840.2 billion in income in 2024 alone due to the CRR, more than the ₦862.1 billion lost cumulatively between 2020–2023 under the old CRR regime.
• Contradictory policies: While recapitalisation is intended to boost lending capacity, the CRR policy effectively blocks fund deployment, creating conflicting incentives.
• Foreign deposits relief: Banks maintaining higher LDRs are relying on foreign subsidiary deposits, which are not affected by the domestic CRR rules.
• Operational strain: With restrictions on dividend payments, bonuses, and foreign investments, banks face additional pressure without liquidity support.

📉 Market Impact:

• Investor sentiment is turning bearish on Nigerian banks.
• Banks are expected to restructure their shares post-recapitalisation, especially those with over 50 billion shares outstanding (e.g., Fidelity Bank and FCMB) to enhance EPS and dividend performance.

📣 Recommendations from Renaissance Capital:

1. Reduce CRR to ease liquidity pressure.
2. Introduce tougher non-performing loan disclosures, similar to the Bank of Ghana’s model, including listing of defaulting borrowers.
3. Allow banks operational breathing space to recapitalise and adjust without sacrificing their role in economic growth.

📅 What’s Next:

The Monetary Policy Committee (MPC) is set to meet in July 2025, with expectations high for a policy recalibration that could ease pressure on the banking sector and reignite credit growth in line with Nigeria’s economic goals.