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Nigeria’s banking sector may be losing trillions of naira annually 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” argued that despite Nigerian banks posting some of the strongest returns on equity in Africa, they continue to trade at deep discounts compared to peers in South Africa and Morocco because of macroeconomic concerns and restrictive regulations. 

The report identified the CBN’s 50% CRR policy as one of the biggest constraints on profitability, stating that it effectively sterilizes half of customer deposits without interest payments.  

According to the analysts, the policy, which was originally designed to manage liquidity, control inflation, and stabilize the naira, may now be creating long-term costs for banks and the wider economy. 

The report stated that Nigerian banks operate under what it described as a “restrictive” regulatory framework that places severe liquidity constraints on deposits.  

According to Chapel Hill Denham, the banking sector’s profitability and lending capacity are being structurally weakened by the current CRR regime. 

The analysts further argued that the opportunity cost created by the CRR is discouraging lending and reducing the banking sector’s ability to create credit within the economy. 

The report highlighted that Nigeria’s CRR remains significantly higher than what is obtainable in several African economies and other inflation-targeting countries globally.  

According to the analysts, the scale of the CRR requirement places Nigeria in a category of its own. 

According to the report, reducing the CRR from 50% to 30% could release roughly N8 trillion back into the banking system and potentially generate around N800 billion in additional annual pre-tax profits for banks. 

The report also noted that current market valuations suggest investors are pricing Nigerian banks as though the present CRR framework will remain permanent despite the possibility of future easing. 

At the February 2026 Monetary Policy Committee (MPC) meeting, the CBN retained the CRR for Deposit Money Banks at 45%, Merchant Banks at 16%, and 75% for non-TSA public sector deposits as part of efforts to maintain tight monetary conditions.  

MPC members defended the decision, citing concerns over inflation, liquidity management, and exchange rate stability. 

The CBN has consistently maintained that elevated CRR levels remain necessary to curb excess liquidity, manage inflationary pressures, and support exchange rate stability, even as analysts continue to debate the long-term impact on banking sector growth and lending.