Banks in Nigeria reduced their reliance on the Central Bank of Nigeria’s (CBN) short-term lending window, borrowing a total of ₦69.37 trillion through the Standing Lending Facility (SLF) in the first eight months of 2025, marking a 12.4% drop compared to ₦79.23 trillion borrowed during the same period in 2024.
The SLF is one of the apex bank’s two primary short-term lending windows alongside repurchase (repo) lending through which commercial banks can access overnight funds. Lending via the SLF comes at 500 basis points above the Monetary Policy Rate (MPR), currently set at 27.5%, while the repo facility allows banks to temporarily exchange securities for liquidity with a buy-back agreement.
Q2 Borrowing Surge Followed by Sharp August Reversal
Despite the overall year-on-year decline, borrowing through the SLF rose sharply in the second quarter of 2025. Banks tapped ₦50.46 trillion from the CBN during the quarter a 61% increase from the ₦9.38 trillion recorded in Q1.
In July, SLF borrowings spiked to ₦6.63 trillion, representing a massive 245.3% jump from ₦1.92 trillion in June. However, that upward trend reversed in August, when borrowings fell by 39% to ₦4.04 trillion.
Analysts link the August pullback to the CBN’s aggressive liquidity mop-up strategy, which included the consistent sale of Open Market Operation (OMO) treasury bills. Between January and August 2025, the CBN sold ₦14.55 trillion worth of OMO bills a 95.3% increase compared to the ₦7.45 trillion sold during the same period in 2024.
Interbank Lending Rates Spike as Liquidity Tightens
Amid these policy moves, the cost of funds in the interbank market also surged. The average interest rate on Collateralized Lending (Open Buy Back, OBB) climbed to 26.5% at the end of August 2025 significantly up from 19% in August 2024.
The tightening interbank conditions contrast sharply with the massive increase in banks’ deposits with the CBN under the Standing Deposit Facility (SDF).
SDF Deposits Soar by Over 450%, Reflecting Excess System Liquidity
Total SDF deposits from banks surged to ₦95.4 trillion in the first eight months of 2025 a 454.3% year-on-year increase from ₦17.21 trillion in the same period last year.
A breakdown of the quarterly figures shows that deposits grew 158.4% quarter-on-quarter, reaching ₦49.68 trillion in Q2 2025, up from ₦19.22 trillion in Q1.
- In June 2025, banks deposited ₦15.4 trillion with the CBN.
- That figure dropped by 29.2% to ₦10.9 trillion in July, before rising again by 43% to ₦15.6 trillion in August.
This continued preference for parking excess funds with the apex bank reflects the excess liquidity in the system and the impact of the CBN’s shift to a single-tier SDF remuneration policy last year. Under the policy, all SDF deposits are paid at MPR minus 100 basis points, which currently equates to an interest rate of 26.5%.
Outlook
With excess liquidity growing and the cost of borrowing increasing, analysts expect the trend of reduced SLF dependence and increased SDF participation to persist unless the CBN recalibrates its monetary tightening tools or adjusts the MPR.
