Two renowned financial experts,  Mustafa Chike-Obi and Adetilewa Adebajo, have submitted that the high interest rate spread and 50% Cash Reserve Ratio are stifling Nigeria’s economic growth.

Chike – Obi, who is the Chairman and CEO of the Bank Directors Association of Nigeria, and Adebajo, CEO of CFG Advisory, said this while featuring in an Arise News interview.

The duo spoke on a report they jointly authored and titled “Adverse effects of high-interest rate spreads on the Nigerian economy.”

Chike-Obi said: “This report by Tilewa and I is not an attempt to solve all the current problems of Nigeria; we are not trying to solve inflation in Nigeria. What we are trying to do is to point out that there is a significant drag on economic growth.

“We guess it’s at least a 20-30% drag on GDP because we have an interest rate spread, which is the difference between what banks pay for deposits and what they lend to bank customers.”

They attributed the problem to excessive regulatory constraints, particularly the Cash Reserve Ratio (CRR), which forces banks to deposit 50% of their funds with the Central Bank of Nigeria at zero interest.

Adebajo said: “The biggest impact on that interest rate is the regulatory requirements, and it’s the CRR. Nigeria has the highest Cash Reserve Ratio in the world at 50%. The next to Nigeria is Turkey at 25%.

“What this simply means is that for every Naira deposit the bank gets, they must give half of it to the CBN at 0% interest rate.

“So what we do is, if we are going to take a deposit that we should pay 20% for, we pay 10% because we are giving half of it to CBN. That’s the biggest impact on the interest rate spread.”