Nigeria’s banking sector may be losing about N2.5 trillion annually in potential earnings 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 at significant discounts compared to peers in countries such as South Africa and Morocco despite posting some of the strongest returns on equity in Africa.
According to the analysts, investor concerns over macroeconomic instability and restrictive regulations are weighing heavily on market valuations.
The report identified the CBN’s 50 per cent CRR policy as one of the major constraints on bank profitability, arguing that the framework effectively sterilises half of customer deposits without any interest payments.
Chapel Hill Denham said the policy, originally introduced to manage liquidity, curb inflation, and stabilise the naira, is now creating long-term costs for banks and the broader economy.
“Our analysis reveals that Nigerian banks operate under a uniquely restrictive regulatory perimeter, including a 50% cash reserve ratio (CRR) and mandatory consolidation of all cross-border operations, that structurally suppresses current reported returns while creating asymmetric upside potential,” the report stated.
The analysts noted that for every N100 deposited, banks are required to keep N50 as non-interest-bearing reserves with the CBN while still paying between 5 per cent and 12 per cent interest to depositors.
“Applying a 15% net interest spread implies an annual earnings drag of approximately N2.5 trillion, equivalent to roughly 60% of Q3 2025 gross earnings,” the report added.
The firm argued that the high CRR is discouraging lending and weakening banks’ ability to create credit within the economy.
It further noted that Nigeria’s CRR remains significantly above levels maintained by other African economies and inflation-targeting countries globally.
According to the report, South Africa operates a CRR of 2.5 per cent, Egypt maintains 16 per cent, Kenya has 4.25 per cent, while Ghana maintains 15 per cent. The report also noted that Morocco has reduced its CRR to zero per cent.
“The Central Bank of Nigeria’s 50% cash reserve requirement sits well above the global norm, fundamentally reshaping bank balance sheets and earnings,” the analysts said.
The report projected that a gradual reduction of the CRR from 50 per cent to between 30 and 40 per cent over the next two to three years could unlock significant liquidity for the banking system.
According to the analysts, reducing the CRR to 30 per cent could release about N8 trillion into the banking sector and potentially generate an additional N800 billion in annual pre-tax profits for banks.
The report also argued that current investor valuations suggest the market is pricing Nigerian banks as though the current CRR framework will remain permanent despite the possibility of future policy easing.
At its February 2026 Monetary Policy Committee (MPC) meeting, the CBN 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 as part of efforts to sustain tight monetary conditions.
MPC members defended the decision, citing inflationary pressures, liquidity management concerns, and exchange rate stability.
CBN has consistently maintained that elevated CRR levels remain necessary to curb excess liquidity, contain inflation, and support naira stability, even as analysts continue to debate the long-term impact of the policy on banking sector growth and private sector lending.
