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Banks mandatory deposits with the Central Bank of Nigeria (CBN), hit a new high as loan growth continues to be muted.
Just nine banks reported N24.81 trillion mandatory deposits with the CBN as of the third quarter September 3o, 2025, representing an increase of 8.31 per cent when compared to N22.91 trillion reported in 2024 financial year, according to data gathered by MoneyCentral.
These banks are: Zenith Bank Plc, Access Holdings Plc, Guaranty Trust Holdings Plc, United Bank for Africa (UBA) Plc, FirstHoldCo Plc, FCMB Plc (Half Year), Stanbic IBTC Holdings Plc, WEMA Bank Plc, and Sterling Bank Plc.
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.
When the central bank raises the CRR, banks hold a larger proportion of their deposits as reserves, thereby reducing the funds available for lending and investment.
This contraction in lending capacity helps reduce liquidity in the economy, which can help control inflation. Conversely, lowering the CRR increases the funds banks can deploy for lending, stimulating economic growth by expanding liquidity.
It is important to note that the country’s CRR that stands at 45 percent is one the highest in the world, as analysts are of the view that a higher ratio limits banks from putting that capital to work, such as providing loans to companies to work, or consumer credit.
It is a case of once bitten twice shy as banks have learned their lessons from the financial crisis of 2008-2010 when they extended credit to risky businesses that later capitulated to macroeconomic headwinds.
Recently, there has been a decent level of loan growth which is not commensurate with the overall growth of the balance sheet of the banking system.
Data gathered by MoneyCentral shows the combined total loans of the nine banks stood at N65.37 trillion as at September 2025, which is 7.42 percent higher than 2024’s N60.86 trillion.
That compares to a 52.63 percent uptick in combined loans for 2024 financial year and 32.64 percent increase in 2023 financial year, according to data gathered by MoneyCentral.
Bank credit to Nigeria’s private sector fell to N75. 83 trillion in August 2025, the lowest level recorded this year, according to the Central Bank of Nigeria’s latest money and credit statistics. The figure represents a 0.4 per cent decline from N76. 14 trillion in June 2025, underscoring a steady slowdown in credit expansion.
“Nigerian banks have so much cash sitting with the CBN but I do not expect this to change overnight. It would take some time, and the pace at which that would change depends on how fast all stakeholders are able to work towards improving the risk environment to enhance the appetite of banks towards lending to the real sector,” said Abiola Rasaq, economist and former Head, Investor Relations and Portfolio Investments for United Bank for Africa (UBA) Plc.
Manufacturers are complaining that they can’t get loans at a lower interest rates even as foreign exchange volatility has been bloating raw material costs which forces them to pass on the costs to consumer in the form of higher prices.
Shareholders of these firms have also bemoaned the negative impact of a high CRR on dividend payouts.
“This structural limitation makes it challenging for banks to meet domestic lending targets, even with higher capital buffers. Notably, banks currently maintaining loan to deposit ratios (LDRs) above 20 per cent are likely doing so through deposits sourced from international operations, which remain unaffected by the CBN’s domestic CRR policy. This policy mix creates conflicting incentives. While recapitalisation seeks to expand lending capacity, the CRR hike stifles liquidity, forcing banks to prioritise balance sheet management over credit expansion,” said analysts at Renaissance Capital.
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