CRR Policy Costs Banks Trillions in Lost Earnings, Says Chapel Hill Denham

Nigeria’s banks are facing mounting pressure on profitability as cash reserve requirements imposed by the Central Bank of Nigeria continue to tie down trillions of naira that could otherwise support lending and earnings growth, a new report by Chapel Hill Denham has revealed.
The investment banking and research firm said the country’s banking industry, despite delivering some of the highest returns on equity on the continent, remains undervalued relative to peers across Africa because investors remain concerned about regulatory constraints and macroeconomic risks.
In its report titled “The Nigerian Banking Paradox: High Returns, Deep Discounts,” Chapel Hill Denham pointed to the high Cash Reserve Ratio (CRR) regime as a major factor limiting the sector’s full earnings potential.
According to the report, the current reserve requirement effectively compels banks to warehouse a substantial portion of customer deposits with the apex bank without earning returns on the funds. The analysts estimated that the policy may be costing the industry as much as N2.5 trillion yearly in lost earnings. They explained that banks continue to pay interest to depositors while a significant portion of deposits remains sterilised at the CBN.
The report stated that the policy environment, which emerged in the aftermath of the 2008 and 2009 banking crisis as well as periods of exchange rate instability, may now be weighing heavily on credit creation and balance sheet efficiency.
“Our analysis reveals that Nigerian banks operate under a uniquely restrictive regulatory perimeter,” the report said, adding that the framework suppresses reported returns even though it could create upside opportunities if regulations are eventually relaxed.
The firm argued that the high CRR has weakened banks’ ability to expand lending to businesses and households, thereby constraining broader economic activity.
Chapel Hill Denham further noted that Nigeria’s reserve requirement remains significantly above levels seen in many African and emerging market economies.
While South Africa maintains a CRR of 2.5 per cent, Kenya operates 4.25 per cent, Ghana keeps 15 per cent, and Egypt maintains 16 per cent, the report noted that Morocco has reduced its reserve ratio to zero per cent.
The analysts described Nigeria’s reserve framework as one of the most aggressive globally, noting that the policy significantly reshapes banking sector earnings and liquidity conditions.
The report projected that a moderation of the CRR from 50 per cent to 30 per cent could inject around N8 trillion back into the banking system and raise annual pre tax profits by an estimated N800 billion.
It added that investors currently appear to value Nigerian banks on the assumption that the tight reserve regime will remain unchanged for the foreseeable future.
At its February 2026 meeting, the Monetary Policy Committee of the Central Bank of Nigeria retained the CRR for Deposit Money Banks at 45 per cent, while Merchant Banks retained 16 per cent and public sector deposits outside the Treasury Single Account framework remained at 75 per cent, as part of efforts to sustain tight monetary policy conditions.