A recent report has raised alarms about a potential cash crunch looming over Nigeria’s banking sector following the Central Bank of Nigeria’s (CBN) decision to raise the Cash Reserve Requirement (CRR) to 50 percent for deposit money banks.
The move, aimed at tightening liquidity in the financial system and curbing inflationary pressures, is expected to significantly reduce the amount of funds banks have available for lending and daily operations. Analysts warn that this sharp increase could lead to liquidity challenges, potentially stifling economic growth and hampering businesses’ access to credit.
The CRR hike means that banks must now keep half of their total deposits with the CBN, limiting their capacity to extend loans to individuals and companies. Financial institutions have reportedly begun adjusting their strategies to cope with the increased reserve requirements.
According to the report from Financial Insight Nigeria, the banking sector could face severe cash flow constraints, particularly affecting smaller banks with limited capital buffers. The report highlights that the measure might also increase borrowing costs as banks seek to maintain profitability amid tighter liquidity.
“While the CBN’s policy is designed to stabilize the naira and control inflation, the unintended consequence may be a credit squeeze in the economy, especially for small and medium enterprises,” the report noted.
Some bank executives have expressed concerns that the CRR adjustment could impact profitability and delay loan disbursements, which are critical for sustaining business operations across various sectors.
The CBN governor, however, maintains that the move is necessary to manage monetary stability and has assured that the central bank will monitor the situation closely to mitigate adverse effects.
Economists urge the government and financial regulators to adopt complementary measures to support liquidity and encourage lending, warning that prolonged cash shortages could slow economic recovery efforts.
