Emerging liquidity pressures in Nigeria’s banking sector are drawing attention from analysts, who recommend a shift toward a more accommodative monetary policy by the Central Bank of Nigeria. This recommendation comes on the heels of a completed recapitalisation exercise that injected N4.65 trillion into the system.
While the recapitalisation exercise has significantly strengthened the capital buffers of Nigerian banks, industry stakeholders warn that the benefits may not fully translate to the real economy unless regulatory constraints, particularly the high Cash Reserve Requirement (CRR), are addressed.
The apex bank recently confirmed that 33 banks met the revised minimum capital thresholds after raising N4.65 trillion over a 24-month period, with 72.55 per cent of the funds sourced domestically and 27.45 per cent from international investors. The exercise, which began in March 2024, marked one of the most ambitious banking reforms in Nigeria’s history, aimed at positioning the sector to support a $1 trillion economy target.
However, despite stronger balance sheets, analysts argue that banks remain constrained in their ability to extend credit due to the current CRR regime, which stands at 45 per cent; effectively locking up a significant portion of deposits with the central bank.
Ayo Teriba, chief executive of Economic Associates, said the prevailing macroeconomic conditions no longer justify such a restrictive policy stance. According to him, the focus of monetary authorities should now shift from capital adequacy to liquidity transmission.
“You cannot ask banks to recapitalise, mobilise deposits, and then restrict their ability to lend,” Teriba said, calling for a drastic reduction of the CRR to near-zero levels or the introduction of interest payments on sterilised funds.
Data indicates that CRR debits have risen sharply in recent years, rising from about N14 trillion in 2023 to nearly N28 trillion, with additional liquidity absorbed through the central bank’s special deposit facility. Analysts warn that this has constrained credit expansion, particularly to small and medium-sized enterprises (SMEs), which are widely regarded as the backbone of Nigeria’s economy.
Stakeholders across the real sector have echoed similar concerns, emphasising that the success of the recapitalisation programme ultimately depends on improved access to finance.
The Manufacturers Association of Nigeria (MAN) has urged the central bank to deploy moral suasion to ensure that banks channel more funds to the manufacturing sector. The group stressed that improved credit access at lower interest rates would enhance production capacity, reduce costs, and boost competitiveness.
Similarly, Chinyere Almona, director-general of the Lagos Chamber of Commerce and Industry (LCCI), noted that stronger capital buffers have expanded banks’ risk tolerance and lending headroom.
“Banks are now better positioned to finance larger and longer-tenor transactions across critical sectors such as manufacturing, infrastructure, energy and agriculture,” she said, while cautioning that high inflation and tight monetary policy could limit immediate reductions in borrowing costs.
Despite the improved capital position of banks, concerns persist about weak financial intermediation. Muda Yusuf, chief executive of the Centre for Promotion of Private Enterprise (CPPE), stressed that the real measure of success lies beyond capital metrics.
“The ultimate success of this reform will be determined not just by stronger balance sheets, but by the extent to which the banking system supports investment, enterprise, job creation and economic transformation,” he said.
This view reflects concerns that the recapitalisation exercise, while successful in strengthening financial stability, may fall short of its developmental objectives if credit flow to the real sector remains constrained.
The push for a CRR cut is also being supported by improving macroeconomic indicators. Analysts point out that Nigeria’s foreign exchange reserves have stabilised, while fiscal pressures linked to Ways and Means financing have eased significantly.
These developments, they argue, reduce the need for aggressive liquidity sterilisation and create room for a more accommodative policy stance that prioritises growth.
However, the Central Bank of Nigeria has maintained its tight monetary posture, reflecting ongoing concerns about inflation and financial system stability.
