Tiered CRR review: Banking and economic implications

Lawrence Sackey, Derick A. Nortah-Ocansey and Daniel Mensah

No PB/001/25, Policy Briefs from Ghana Association of Banks (GAB), Accra

Abstract: This policy brief provides a critical assessment of the Bank of Ghana's tiered Cash Reserve Ratio (CRR) regime introduced in April 2024 as a dual-purpose instrument to moderate liquidity conditions while incentivising private sector credit expansion. Under the framework, reserve requirements are inversely linked to banks' loan-to-deposit (L/D) ratios, with higher lending activity attracting lower cash reserve obligations. Using a ten-month month-on-month comparative analysis of industry L/D ratios before and after implementation, the evidence suggests that the anticipated credit expansion has not materialised. The average L/D ratio in the post-implementation period was lower than in the corresponding pre-policy period, indicating limited responsiveness of bank lending behaviour to the tiered incentive structure. The findings point to binding structural constraints that dilute the effectiveness of cash reserve-based credit incentives. Persistently elevated non-performing loans, high borrowing costs anchored by a Ghana Reference Rate near 30 percent, renewed inflationary pressures, exchange rate depreciation, and weak credit information infrastructure collectively constrain risk appetite and credit demand. In this environment, banks face a trade-off between asset quality preservation and regulatory reserve penalties, generating sub-optimal outcomes for both credit expansion and profitability. The brief argues that cash reserve requirement differentiation, in isolation, is insufficient to stimulate sustainable credit growth. It recommends a recalibration toward a more predictable and flexible CRR structure, complemented by strengthened credit infrastructure, enhanced risk-sharing mechanisms, coordinated macroeconomic stabilisation policies, and development of alternative financing channels. A holistic approach is required to align regulatory incentives with macro-financial realities and support durable private sector credit expansion.

Date: 2025
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