Nigerian Banks Lose N2.5tn Annually To High CRR- Report

Nigeria’s banking sector is losing an estimated N2.5 trillion in annual earnings due to the Central Bank of Nigeria’s high Cash Reserve Ratio (CRR) policy, according to a new report by Chapel Hill Denham.
The investment banking and research firm said the policy continues to impose significant constraints on bank profitability by requiring lenders to keep a large portion of customer deposits with the Central Bank without earning returns on them, effectively locking away funds that could otherwise support lending and income generation.
In its report titled “The Nigerian Banking Paradox: High Returns, Deep Discounts,” Chapel Hill Denham noted that although Nigerian banks rank among the highest return-on-equity performers in Africa, they remain undervalued compared to peers, largely due to regulatory constraints and macroeconomic uncertainty.
The firm identified the CRR regime as a key structural factor limiting the sector’s earnings potential, arguing that it reduces balance sheet efficiency and restricts credit creation to the real economy. According to the report, banks are still required to pay interest on deposits while a significant portion of those funds remains sterilised at the apex bank.
Chapel Hill Denham stated that the current policy framework, which evolved in response to past financial sector instability and exchange rate pressures, may now be exerting a heavier drag on growth and profitability than originally intended.
“Our analysis reveals that Nigerian banks operate under a uniquely restrictive regulatory perimeter,” the report said, adding that the structure suppresses reported returns despite underlying profitability strength.
The report also compared Nigeria’s reserve requirements with other jurisdictions, noting that the country’s CRR remains significantly higher than several African and emerging markets. While South Africa operates a 2.5 per cent CRR, Kenya maintains 4.25 per cent, Ghana 15 per cent, and Egypt 16 per cent, with Morocco reported to have reduced its reserve ratio to zero.
Analysts at the firm said a moderation of Nigeria’s CRR from 50 per cent to 30 per cent could release up to N8 trillion into the banking system and potentially boost annual pre-tax profits by about N800 billion.
They added that investors currently price Nigerian banks on the assumption that the tight monetary stance will persist, limiting valuation upside despite strong earnings performance.
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 remained at 16 per cent, and public sector deposits outside the Treasury Single Account framework at 75 per cent, as part of efforts to sustain tight monetary conditions and manage liquidity pressures.