In a clear indication of excess liquidity in Nigeria’s banking system, commercial banks’ deposits with the Central Bank of Nigeria (CBN) surged by 1,578 percent year-on-year (YoY) to ₦53.5 trillion in the first five months of 2025 (5M’25), up from ₦3.19 trillion in the corresponding period of 2024 (5M’24).
This sharp rise underscores shifting liquidity dynamics in the financial system, partly influenced by changes in CBN’s monetary operations framework and its Standing Deposit Facility (SDF) policy.
Monetary Tools at Play
The apex bank manages liquidity through two key lending instruments:
- The Standing Lending Facility (SLF): A short-term lending window where banks borrow from the CBN at a rate 500 basis points (bps) above the Monetary Policy Rate (MPR).
- Repo Lending: A repurchase agreement allowing banks to borrow by selling securities to the CBN with a commitment to repurchase them at a later date.
Conversely, banks deposit excess liquidity through the Standing Deposit Facility (SDF), earning interest at MPR minus 100 basis points. With the MPR currently at 27.5%, SDF deposits now attract 26.5% interest, incentivizing higher placements.
Quarterly and Monthly Breakdown
A trend analysis reveals an unprecedented build-up of idle funds in banks’ coffers:
- In Q1 2025, deposits via the SDF rose to ₦19.22 trillion, marking a 956% YoY increase from ₦1.82 trillion in Q1 2024.
- By April 2025, SDF placements hit ₦16.75 trillion, up 3,793% YoY from ₦428.98 billion in April 2024.
- In May 2025, the momentum continued with banks placing ₦17.55 trillion, a 1,761% rise compared to ₦943.1 billion in May 2024.
Borrowing Trends Point to Liquidity Saturation
While deposits soared, banks’ borrowing from the CBN under the SLF recorded only modest growth:
- In 5M’25, total borrowing rose by just 6.8% YoY to ₦57.98 trillion, from ₦54.29 trillion in the same period of 2024.
- In Q1 2025, SLF borrowing increased significantly by 61% YoY, hitting ₦50.46 trillion, up from ₦31.25 trillion in Q1 2024.
- However, in April 2025, borrowing dropped to ₦4.5 trillion, reflecting a 170% YoY decline from ₦12.17 trillion in April 2024.
- The downward trend continued in May 2025, with borrowing slumping by 81% YoY to ₦2.02 trillion, compared to ₦10.87 trillion in May 2024.
CBN Policy Shift Driving SDF Uptick
The dramatic increase in SDF usage is widely attributed to the CBN’s unified SDF remuneration model, introduced in 2024. Under the new system, all bank deposits through the SDF are remunerated uniformly at MPR minus 100bps, effectively removing caps on daily deposit volumes.
The attractive 26.5% yield on idle funds, in a high-interest-rate environment, has led banks to channel significant liquidity into the SDF rather than lend to the real sector.
Implications for the Economy
The surge in SDF placements and corresponding dip in SLF borrowing reflect a liquidity-rich but credit-shy banking system, with implications for credit growth, interest rates, and monetary policy transmission.
As Nigeria grapples with inflation and sluggish economic recovery, analysts suggest the CBN may need to reassess incentives to encourage productive lending while maintaining financial system stability.
