Nigeria’s steep increase in regulatory cash reserve requirements for its banks could more than halve the pace of loan growth for the biggest lenders, as the industry contends with tighter liquidity conditions.
The Central Bank of Nigeria on Tuesday increased the minimum cash reserve ratio for the industry to 45% from 32.5% to help curb naira liquidity, rein in inflation and stabilize the exchange rate.
“The hike will reduce banks’ liquidity ratios and constrain loan growth,” said FBNQuest analyst Tunde Abidoye in Lagos. “We see an average in loan growth of around 10%-15% in 2024 across our coverage universe,” he said. That’s compared to 37% growth last year among the largest lenders it monitors including Guaranty Trust Holding Co. Plc, Access Holdings Plc and Zenith Bank Plc.
The new threshold places Nigeria’s cash reserve requirements far above its African peers. The cash reserve ratio in South Africa is 2.5%, 4.3% in Kenya and 15% in Ghana.
“Relative to banks from other regions, the outlook for Nigerian banks is likely to worsen,” Bloomberg Africa Economist Yvonne Mhango said. “Lending should slow in Nigeria. An increase in the fraction of deposits that banks have to hold as reserves, implies a fall in money supply.”
The NGX Banking index was down by 6.9% to 800.33 at 3:30 p.m. in Lagos, its steepest decline in a month. Access Holdings, the top lender by assets, retreated 9.8% to lead the sell-off on the gauge.
