Following the increasing level of threat in the business environment in Nigeria, arising from: insecurity, supply chain problems, rising inflation and poor purchasing power, low level of productivity, that has hindered banks from lending, the banks’ deposits with the Central Bank of Nigeria (CBN) skyrocketed by 730 per cent year-on-year (YoY) to N67.72 trillion in the first half (H1) 2025, up from N8.15trillion recorded in the same period of 2024 (H1 2024).
The significant increase in banks and merchant banks deposit with CBN underscores the growing excess liquidity within the banking sector.
Banks place their excess funds with the CBN through the Standing Deposit Facility (SDF), which offers an interest rate of Monetary Policy Rate (MPR) minus 100 basis points. With the MPR currently at 27.5per cent, the SDF yields a return of 26.5per cent.
The CBN also offers two key windows for short-term funding; the Standing Lending Facility (SLF) and Repurchase Agreements (Repos).
Through the SLF, the apex bank lends money to commercial banks at an interest rate set at 500 basis points above the MPR. Under the Repo arrangement, the CBN temporarily purchases securities from banks with an agreement to sell them back later at a higher price.
A breakdown of the trend showed that bank deposits with the CBN stood at N19.22 trillion in first quarter (Q1) 2025, representing a 956per cent increase from N1.82 trillion in Q1 2024.
In April 2025 alone, SDF deposits surged by a staggering 3,793per cent YoY to N16.75 trillion, compared to N428.98 billion in April 2024.
The upward momentum continued in May 2025, when deposits reached N17.55 trillion, marking a 1,761per cent increase from N943.1 billion in the same month last year.
In addition, banks deposit with CBN closed June 27, 2025 at N14.2 trillion, about 186.06 per cent growth frrom N4.96trillion reported by CBN in June 2024.
Analysts have attributed the significant increase in deposit with CBN by banks to growing reluctance to lend to the real economy. This caution stems from rising non-performing loan (NPL) risks, insecurity and supply chain disruptions, persistent inflation and currency instability, declining consumer purchasing power.
Instead of pushing credit into volatile sectors, banks are opting for safe returns on overnight deposits with the CBN.
The interest rate at which these banks borrow from CBN has not changed in 2025 amid the MPC maintaining the status quo on MPR or interest rate.
In 2024, the MPC members voted to increase interest rate from 18.75 per cent to 27.50 per cent amid its mandate to tackle inflation rate and unstable Naira at the foreign exchange market. However, the MPR has remained at 27.50 per cent since the beginning of 2025 as the committee continued to tackle inflation rate.
In 2024, the CBN shifted to a single-tier remuneration structure for the SDF. Previously, deposits up to a certain threshold, for example N3 billion, earned a higher interest rate, while amounts exceeding that threshold earned a lower rate.
In 2024, banks deposit to CBN increased significantly to N38.12trillion, about 210.15 per cent increase when compared to N12.29trillion in 2023.
SDF in 2024 witnessed significant patronage as banks and merchant banks deposit reached highest peak of about N8.12 trillion in August 2024
The increase is coming on the backdrop of CBN removal of the cap on the remunerable policy, among others.
The CBN governor, Mr. Olayemi Cardoso had disclosed that the apex bank removed the cap on the remunerable SDF to increase activity in the SDF window and manage liquidity.
In a circular addressed to DMBs, CBN said the SDF will now be 26.5per cent. This represents a sharp increase from the previous 19per cent. The policy change was communicated through a circular issued by the Director of the Financial Markets Department, CBN, Omolara Duke.
The circular instructed all authorised financial institutions to acknowledge and implement the updated structure, which supersedes the previous framework.
CBN had maintained that the strong patronage at the SDF confirmed healthier liquidity in the banking system, stressing that banks and merchant banks were in search of better yields.
The current inflation rate in Nigeria is above yield on Treasury bills (T-Bills) and banks are looking for risk-free investments, which SDF has provided since the MPR hike of 2024.
Commenting, Investment Banker & Stockbroker, Tajudeen Olayinka, attributed the surge in banks deposit with CBN to uncertainty in the business environment over rising insecurity, among others.
According to him, “The most significant factor is the increasing level of threat in the environment of business in Nigeria, arising from: insecurity, supply chain problems, rising inflation and poor purchasing power, low level of productivity, rising unemployment, liquidity overhang and paucity of risk-free financial instruments.”
He added that, “As a result, most banks prefer to be debited by CBN for running short of LDR limit, as against extending credit to businesses that are finding it difficult to survive. It is all about managing risk.”
In addition, the Chief Operating Officer of InvestData Consulting Limited, Mr. Ambrose Omordion added that CBN is the last resort where DMBs deposit excess liquidity that comes with an attractive yield.
He explained that, “When a bank goes to borrow from CBN, it is a sign the bank is having liquidity challenges. The latest report by CBN revealed stability in the banking sector and most of them have a strong capital base to lend to the real sector and expand.
“The LDR policy of CBN is meant to encourage banks to lend to the real sector and of recent, the private sector lending has witnessed a trajectory and a bit of disruption due to a hike in global interest has slowed down customers borrowing from the banks. The hike in interest rate has impacted the cost of funds which is expected to change the direction on who banks lend to customers.
“For me, the improvement in deposit with CBN is a sign that these banks have enough liquidity and are taking preventive measures to checkmate Non-performing Loans (NPL).In addition, the high interest of seven per cent depositing with CBN is also another alternative for banks to make more money and improve on profitability.”
Meanwhile, banks’ borrowing through the SLF rose by YoY to N58.91 trillion in H1 2025, upby 1.44 per cent YoY from N58.07 trillion in the same period of 2024. However, a more granular view reveals mixed trends.
In Q1 2025, SLF borrowing increased sharply by 61per cent YoY to N50.46 trillion, compared to N31.25 trillion in Q1 2024. But by April 2025, borrowing had declined significantly to N4.5 trillio, a 170per cent drop from N12.17 trillion in April 2024.
The decline continued into May 2025, when borrowing further decreased by 81per cent YoY to N2.02 trillion from N10.87 trillion in May 2024, while in June 2025, an estimated N1.93trillion was borrowed from CBN, about 48.96 per cent decline when compared to N3.78 trillion borrowed in June 2025.
