Cut CRR To Boost Credit, World Bank Urges CBN

The World Bank has called on the Central Bank of Nigeria (CBN) to gradually reduce the country’s high Cash Reserve Ratio (CRR), saying the move would unlock credit to businesses and households and lower borrowing costs.

This recommendation is contained in the World Bank’s April 2026 Nigeria Development Update, which noted that Nigeria’s current monetary stance remains tight despite recent signs of easing inflation.

The report observed that the CRR has been maintained at an elevated 45 per cent, limiting banks’ ability to lend to the real sector.

According to the Bretton Woods institution, lowering the share of deposits that banks are mandated to keep with the apex bank would ease liquidity pressures in the banking system and improve credit allocation across the economy.

“Gradually lowering the high share of customer deposits that banks are required to hold at the central bank as reserves (the Cash Reserve Ratio, CRR) would ease pressures on banks’ liquidity management, improve credit allocation, and lower borrowing costs for businesses and households.” the report stated.

Stressing that the move would not only translate into lower borrowing costs for businesses and households, but also support economic growth and private sector expansion, the report furthered that “narrowing the wide gap between the central bank’s overnight lending and deposit rates would also lower banks’ liquidity management costs, allowing them to charge smaller spreads.”

The report further noted that Nigeria’s banking sector has increasingly shifted its asset composition toward government and central bank securities, with loans to the private sector declining to 32.9 per cent of total assets in 2025 from 34.3 per cent a year earlier. This trend, it noted, underscores the limited transmission of monetary policy to real sector lending.

While acknowledging that monetary policy has played a key role in moderating inflation, the World Bank pointed out that implementation gaps have weakened its effectiveness. It therefore urged the CBN to recalibrate its policy toolkit to enhance transparency, predictability and efficiency in monetary transmission.

Beyond CRR reduction, the report recommended narrowing the wide gap between the CBN’s lending and deposit rates, noting that this would reduce banks’ liquidity management costs and compress interest rate spreads.

It also advised that open market operations should focus more on managing naira liquidity rather than attracting foreign portfolio inflows.

The global lender maintained that concentrating the issuance of CBN bills at shorter maturities could further reduce domestic borrowing costs and improve policy transmission.

Despite these constraints, the report said Nigeria’s financial sector remains broadly resilient, with total financial system assets rising to 51.3 per cent of GDP, driven largely by growth in banking, pension and insurance segments.
The World Bank said sustaining the current disinflation trend would provide room for a gradual easing of monetary constraints, including a reduction in reserve requirements.

This, it noted, would be critical to improving credit flow, supporting investment and driving inclusive economic growth.

However, it cautioned that structural credit risks and broader macroeconomic uncertainties, including external shocks from the Middle East conflict, could continue to exert upward pressure on lending rates if not carefully managed.