CFG Report: Banks Charge High Lending Rates to Compensate for High Regulatory Reserve Requirements, Levies, Taxes

A recent report by CFG Advisory highlights that Nigerian banks impose high lending rates to offset the costs of holding large regulatory reserves mandated by the Central Bank of Nigeria (CBN). The report, co-authored by Mustafa Chike Obi and Adetilewa Adebajo, explains that the significant spread between lending and deposit rates results from systemic inefficiencies, including the 50% Cash Reserve Ratio (CRR), liquidity requirements, and additional levies like the AMCON levy and NDIC premiums. These financial burdens lead banks to transfer costs to customers, thereby widening interest rate spreads.

The report warns that the widening spread, which increased from 6% in 2023 to 19% in 2025, negatively impacts economic productivity, GDP growth, and business profitability. High lending rates make borrowing more expensive for businesses and individuals, reducing investment and slowing economic activity. Additionally, lower deposit rates discourage savings, further constraining funds available for lending. These structural inefficiencies hinder Nigeria’s economic performance and widen the output gap, particularly affecting manufacturing output.

To address these issues, CFG recommends a combination of regulatory and market-based reforms. The CBN should consider policies to narrow the interest rate spread by either reducing lending rates or increasing deposit rates. Additionally, improving banking sector efficiency, lowering levies, and implementing government policies that promote economic growth—such as infrastructure investment and foreign investment incentives—could help stabilize the financial system and encourage sustainable economic expansion.

Source: THIS DAY