Nigerian banks have significantly ramped up their deposits with the Central Bank of Nigeria (CBN), with total placements soaring by 1,578 percent year-on-year (YoY) to N53.5 trillion in the first five months of 2025 (5M’25), compared to N3.19 trillion recorded during the same period in 2024.
This dramatic rise underscores the presence of excess liquidity in the financial system, prompting banks to take advantage of the CBN’s Standing Deposit Facility (SDF) amid fewer lending opportunities elsewhere.
The CBN provides two primary short-term liquidity windows for commercial banks: the Standing Lending Facility (SLF) and Repurchase (Repo) agreements. While banks can access funds at the SLF window at an interest rate of 500 basis points above the Monetary Policy Rate (MPR), the SDF allows banks to deposit surplus funds at a rate of MPR minus 100 basis points.
Currently, with the MPR at 27.5 percent, the SDF pays an effective rate of 26.5 percent, which has made it increasingly attractive for banks.
Data from the apex bank shows that bank placements through the SDF climbed to N19.22 trillion in the first quarter of 2025 (Q1’25), marking a staggering 956 percent YoY increase from N1.82 trillion in Q1’24.
In April 2025 alone, deposits at the CBN under the SDF ballooned to N16.75 trillion, a 3,793 percent increase compared to N428.98 billion in April 2024.
May 2025 continued the trend, with banks depositing N17.55 trillion at the CBN, reflecting a 1,761 percent rise from the N943.1 billion recorded in May 2024.
Meanwhile, banks’ borrowings through the SLF saw only a modest rise, indicating that fewer institutions are seeking funds to support lending. SLF usage climbed by 6.8 percent YoY to N57.98 trillion in 5M’25, up from N54.29 trillion a year earlier.
In Q1’25, however, borrowing through the SLF rose sharply by 61 percent YoY to N50.46 trillion from N31.25 trillion in Q1’24.
The second quarter, however, saw a marked slowdown. In April 2025, banks accessed N4.5 trillion from the SLF, down by 170 percent YoY from N12.17 trillion in April 2024.
This trend deepened in May, with SLF borrowing dropping by 81 percent YoY to N2.02 trillion, compared to N10.87 trillion in the same month last year.
Analysts attribute the sharp rise in SDF patronage to a combination of the banking system’s surplus liquidity and the CBN’s policy shift last year to a single-tier remuneration structure for SDF deposits.
Under the current framework, all SDF placements earn interest at MPR minus 100 basis points, making it an appealing option for banks in an environment of cautious lending and tight credit risk management.
The figures highlight a broader challenge for monetary authorities—how to manage banking system liquidity without undermining lending to the real economy.
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