Nigeria: CBN Tightens Liquidity Rules with 75% CRR on Non-TSA Deposits

Nigerian banks, particularly those reliant on government deposits, face new funding pressures following the Central Bank of Nigeria’s (CBN) introduction of a 75% Cash Reserve Ratio (CRR) on non-Treasury Single Account (non-TSA) deposits. The measure, announced after the Monetary Policy Committee (MPC) meeting, is aimed at curbing excess liquidity and reinforcing macroeconomic stability.

CBN Governor Olayemi Cardoso, presenting the MPC communique, explained that while inflation has been on a steady decline, the banking system continues to experience a build-up of excess liquidity, largely driven by fiscal injections from improved government revenues.

Unlike TSA balances—which represent federal revenues warehoused directly with the CBN—non-TSA deposits typically comprise state and local government funds parked with commercial banks. These inflows, particularly after Federation Account Allocation Committee (FAAC) disbursements, often swell liquidity in the system, exerting pressure on foreign exchange markets and inflation dynamics.

Analysts at Afrinvest observed that FAAC-related flows have historically coincided with periods of naira weakness. They noted that sterilising 75% of such balances would force banks to rely more on private-sector deposits, potentially squeezing margins in the near term.

“Episodes of naira depreciation often aligned with post-FAAC liquidity surges. By sterilising these flows, banks will need to double down on mobilising cheaper private capital,” Afrinvest said in its weekly note.

Tilewa Adebajo, CEO of CFG Advisory, welcomed the move, describing it as a necessary step to rein in fiscal-driven inflation.

“The new CRR framework is a positive development. With excess liquidity mopped up, we can sustain the downward inflation trend while encouraging fiscal discipline,” Adebajo said. He added that although banks face tighter liquidity, they would gain some relief as the general CRR on commercial banks was eased from 50% to 45%.

Adebajo also stressed that meaningful impact would only be felt once inflation moderates to around 12%, a threshold he believes could unlock growth rates above 8%.

In a separate analysis, CardinalStone highlighted that non-TSA balances represented about 1.6% of broad money supply (M3) as at end-2024, equivalent to 1.3 times state and local FAAC receipts for December 2024. The firm noted that sterilising these flows should help moderate FX pressures and align outflows with actual government spending patterns.

The MPC’s latest actions underscore a delicate policy balancing act—cutting the benchmark interest rate by 50 basis points to 27% to support growth, while simultaneously tightening around volatile liquidity channels to preserve price stability and exchange rate confidence.