Nigeria’s banking reserves surged to N26.8 trillion in August 2024, a substantial increase from N19.4 trillion a year earlier, as the Central Bank of Nigeria (CBN) continues its aggressive monetary tightening under Governor Yemi Cardoso.
The jump comes in response to the CBN’s efforts to contain rising inflation and curtail excessive liquidity in the financial system.
At its most recent Monetary Policy Committee (MPC) meeting, the committee raised the Monetary Policy Rate (MPR) by 50 basis points to 27.25%, signaling a continuation of its tightening cycle.
Perhaps more significantly, the MPC also raised the Cash Reserve Ratio (CRR) by 500 basis points to 50%, a clear indication of the apex bank’s determination to mop up liquidity and stabilize the economy.
Since taking office, Governor Yemi Cardoso has relied heavily on the CRR to manage liquidity, drive up reserves, and temper inflationary pressures.
The resulting growth in bank reserves reflects the cumulative effect of these policies, with reserves expanding by N7.4 trillion between August 2023 and August 2024.
A large portion of this increase occurred between December 2023 and August 2024, when reserves jumped by N2.1 trillion in the last two months alone, coinciding with steep CRR hikes.
The CBN’s policies come in response to the twin challenges of inflation and a growing money supply.
The CBN’s approach to managing liquidity through CRR hikes and interest rate adjustments is part of a broader strategy to control inflation and maintain price stability.
Bankers have voiced concerns over the impact of these aggressive CRR hikes. With the CRR now at 50%, banks are compelled to lock half of their customer deposits at the CBN, where they earn no interest.
Yet, they continue to pay interest on the full 100% of deposits they receive. This dynamic is placing increasing pressure on banks’ margins, making it more difficult for them to lend effectively and maintain profitability.
This sentiment echoes across the sector, as other bankers have similarly described the CRR levels as stifling. The liquidity crunch created by the CRR hike not only limits banks’ ability to lend but also raises borrowing costs for businesses and consumers, which could further stifle economic growth.