In Nigeria, the Central Bank (CBN) is taking steps to control inflation by tightening its monetary policy, but it’s having unintended consequences on the economy. By increasing the mandatory reserve deposits that banks must keep with the CBN, the amount of money available for lending decreases. This is making it harder for commercial banks to offer loans to businesses and individuals, which could slow down economic growth.
As of December 2023, the mandatory reserve deposits surged by over 70%, reaching N17.26 trillion. This means banks like Zenith Bank, Access Bank, and others have significant amounts of money tied up with the CBN, limiting their ability to lend. Additionally, the CBN’s decision to review the loan-to-deposit ratio (LDR) further restricts banks’ liquidity, making it harder for them to support the economy through lending.
While the CBN’s actions aim to stabilize the economy and control inflation, experts worry that the high reserve requirements and lowered LDR could hinder economic recovery. Some analysts suggest that these policies may put undue pressure on banks and limit their ability to manage risks effectively.
Source: Daily Trust