The Central Bank of Nigeria (CBN) has reported a record surge in bank deposits under its Standing Deposit Facility (SDF), just days after cutting its benchmark interest rate for the first time since 2020. Figures released showed deposits recording a sharp 38.34 per cent increase.
The spike came in the wake of the CBN’s decision to reduce the Monetary Policy Rate (MPR) by 50 basis points to 27 per cent, ending a long tightening cycle. At the same time, the overnight lending rate fell by 100 basis points to 25.5 per cent, reflecting greater liquidity in the banking system. The SDF allows commercial banks to place excess funds overnight with the CBN and earn interest without providing collateral, making it an attractive short-term option during periods of uncertainty.
The unprecedented inflow into the SDF highlights how banks are prioritising secure, risk-free returns over lending to the wider economy. It demonstrates a preference for safety amid an environment still marked by inflationary pressures and volatile credit risks.
The development has a double-edged implication for the Nigerian economy. On one hand, the surge in deposits signals robust liquidity management and may help stabilise money market operations. On the other hand, it raises concerns that banks remain reluctant to extend credit to businesses and households, potentially constraining investment and growth at a time when policymakers are seeking to stimulate the economy.
The CBN had justified its rate cut by citing five consecutive months of disinflation, with headline inflation easing to 20.12 per cent in August. The move was designed to ease borrowing costs, encourage lending, and support growth after the economy expanded by 4.23 per cent in the second quarter of 2025. However, the sharp jump in SDF deposits suggests that the rate cut may not immediately translate into increased credit for the real sector.
Market watchers note that this tension between monetary easing and banking behaviour reflects broader structural challenges in Nigeria’s financial system. Persistent non-performing loan risks, high operating costs, and an uncertain business environment often lead banks to favour low-risk instruments such as CBN facilities and government securities over more productive, but riskier, private-sector lending.
For now, the CBN’s balancing act continues: lowering interest rates to encourage growth while ensuring that liquidity is not merely recycled back into its own vaults. Whether the record deposit levels represent a temporary adjustment or an entrenched pattern will be closely watched in the weeks ahead, as the Bank attempts to steer credit towards the real economy without undermining financial stability.
