Restricted deposits hits N22.83trn as banks battles with fitted liquidity

The incessant increase in the cash reserve requirements (CRR) by the Central Bank has seen the banks restricted deposits with the CBN jump, impacting financial intermediation and expanding operational costs.

For instance, the cash reserves of ten banks spiked by 35.88 percent to N22.8883 trillion in December 2024, from N16.80 trillion as at December 2023, according to data gathered by MoneyCentral.

Cash Reserve Ratio (CRR) is a specified minimum fraction of the total deposits of customers, which commercial banks have to hold as reserves either in cash or as deposits with the central bank.

The country’s cash reserve ratio at 50 percent is one of the highest in the world as the central bank intends to reduce inflation expectations and curb excess liquidity.

The CRR of South Africa stands at 2.50 percent; Kenya, 3.25 percent, and Ghana, 15 percent.

Analysts say higher CRR have hindered Nigerian banks from increasing lending to the real sector as the country reels from lower productivity and deteriorating macroeconomic conditions.

The candidate of the Labour Party in the 2023 General Election, Peter Obi, said that the strict monetary policy rules would worsen the nation’s precarious economic situation.

“With my vast trading knowledge and my involvement in the real sector, I am of the strong opinion that the cash reserve ratio is bound to cause more job losses in the productive sector, especially manufacturing and other sectors that rely on bank loans for their funding needs,” said Obi

“The most critical way to manage our high rate of inflation and decline in production is for the government to address the issue of insecurity in the country, which will allow for increased food, and crude oil production, and the overall increase in production, which will make products, especially foods, cheaper,” added Obi.