Global ratings agency Moody’s Investors Service has warned that Nigeria’s banking sector may face renewed profitability pressures following the Central Bank of Nigeria’s reduction of its benchmark Monetary Policy Rate from 27.5 per cent to 27 per cent.

The CBN attributed the 50-basis-point cut to continued disinflation, expectations of further declines in inflation, and the goal of supporting economic recovery.

Moody’s, however, cautioned that the rate cut could compress banks’ net interest margins unless increased lending volumes compensate for lower yields.

“We expect the lower policy rate to drive a decline in yields on loans and government securities that will outpace the related decrease in the cost of deposits,” the agency stated.

Moody’s Investors Service noted that net interest income made up 62% of Nigerian banks’ operating income in 2024, emphasizing that the recent reduction in the Cash Reserve Requirement would offer only partial relief.