Nigerian banks have deposited over ₦1.6 trillion with the Central Bank of Nigeria (CBN) through its Standing Deposit Facility (SDF), highlighting a sharp increase in market liquidity. This trend, recorded between October 14 and 17, signals a significant buildup of idle cash in the financial system.
Data from the CBN shows that SDF placements rose steadily over the period, reaching ₦1.61 trillion on October 17, up from ₦1.44 trillion just two days earlier. This surge follows a series of large Open Market Operation (OMO) repayments by the apex bank. On October 14 alone, ₦481.33 billion in OMO maturities were settled, injecting fresh liquidity into the banking sector. With no new OMO auctions conducted during this period, many banks chose to park their excess cash at the CBN to earn interest, rather than lend or invest it elsewhere.
Analysts suggest that high overnight lending rates are a major factor behind this behavior. The CBN’s Standing Lending Facility (SLF) rate currently hovers around 24.88%, making the deposit facility an attractive, low-risk avenue for banks to earn returns on idle funds. Instead of engaging in potentially riskier lending, many banks are opting for the guaranteed interest from the CBN.
However, while system-wide liquidity appears high, not all banks have equal access to cash. Opening balances, which is a reflection of available funds at the start of the banking day, have shown sharp declines, indicating that some institutions may be experiencing tighter cash flow. On October 17, opening balances fell to ₦97.45 billion, representing a 35.3% drop from the previous day. Similarly, from October 13 to 14, balances dropped by 58.5%, falling from ₦472.75 billion to ₦196.01 billion.
Despite the increased use of the SDF, borrowing through the CBN’s SLF was minimal. Only ₦500 million was accessed on October 14, suggesting limited need for emergency or overnight loans among banks. Additionally, other liquidity tools like repo and reverse repo operations remained largely inactive during this time.
The preference for depositing funds with the central bank rather than lending them out raises concerns about reduced credit availability in the real economy. With banks prioritizing safety and returns over lending, businesses and consumers may find it harder to access loans. If this trend persists, it could pose challenges for economic growth, particularly in sectors that rely heavily on bank financing.
