Nigeria’s banking reserves grew significantly to N26.8 trillion in August 2024, up from N19.4 trillion the previous year.
This increase is a result of the Central Bank of Nigeria’s (CBN) efforts, led by Governor Yemi Cardoso, to control inflation and manage liquidity.
At the most recent Monetary Policy Committee (MPC) meeting, the CBN raised the Monetary Policy Rate to 27.25% and hiked the Cash Reserve Ratio (CRR) to 50%, locking up half of banks’ deposits with the central bank.
These CRR hikes under Cardoso’s leadership have been a major tool to curb excess liquidity, leading to a N7.4 trillion rise in reserves over the past year.
However, this has placed pressure on banks, as they are required to lock away 50% of their deposits without earning interest, while continuing to pay interest on the full amount.
This strain is affecting banks’ ability to lend and is raising borrowing costs for businesses and consumers, potentially slowing economic growth.
The CBN’s policies are part of a broader strategy to tackle Nigeria’s high inflation, which reached 32.15% in August 2024, driven by structural problems and rising energy costs.
While the CRR hikes aim to stabilize the economy, bankers have expressed concerns over the sustainability of the current financial dynamics.