CRR hike to drag banks’ profitability, stocks –Experts

By Chinwendu Obienyi

Following the Monetary Policy Committee (MPC)’s decision to raise the Cash Reserve Ratio (CRR) from 27.5 percent to 32.5 percent to tame inflationary pressure, capital market experts have said this will have an effect on the profitability of Nigerian banks.

According to them, the hike could result to downward pressure on banks’ net interest margins (NIM) which would inhibit earnings growth and may further limit investors’ interest in banking stocks. CRR is the share of a bank’s total customer deposit that must be kept with the central bank. Also, the CRR is one of the ways CBN regulates the country’s money supply, inflation level and liquidity in the country. 

The CBN Governor, Godwin Emefiele, had said the directive would allow the apex bank to achieve its desired results.

“We have increased the CRR and we expect that this decision at this meeting must be seen to be potent and must achieve the effect that the MPC thinks it should achieve,” he said.

But analysts at Cordros Research noted that with the flattish performance of the equities market last week, they expect the local bourse to maintain cautious trading sentiments on resumption today as electioneering activities kick off in full gear.

According to data obtained from the Nigerian Exchange Limited (NGX)’s website at the weekend, cautious trading dominated the local bourse this week, as the All-Share Index (ASI) ended the week flattish at 49,024.16 points.

The capitalisation of listed equities, which stood at N26.547 trillion on the eve of the pronouncement on Monday, September 26, 2022, depreciated by N96 billion ( In three trading sessions) to close at N26.451 trillion on Friday.

“Considering the outcome of the MPC meeting, we believe the CRR hike would drag the banks’ profitability, as downward pressure on net interest margins (NIM) would inhibit earnings growth and may further limit investors’ interest in banking stocks. 

Overall, we expect the local bourse to maintain cautious trading sentiments as electioneering activities kick off in full gear. However, we advise investors to take positions in only fundamentally justified stocks as the fragility of the macroeconomic environment remains a significant headwind for corporate earnings”, analysts at Cordros Research said.