Nigerian banks deposited ₦6.98 trillion with the Central Bank of Nigeria (CBN) as of October 27, highlighting the huge liquidity surplus in the financial system even as the Federal Government seeks to raise funds through domestic borrowing.
The deposits, made through the CBN’s Standing Deposit Facility (SDF), came ahead of the October 28 Nigerian Treasury Bills auction, where the Debt Management Office (DMO) offered ₦800 billion across 91-day, 182-day and 364-day instruments.
The development underscores the challenge of channelling excess funds in the banking system into productive economic activities, with financial institutions continuing to place substantial amounts with the apex bank rather than expanding lending to businesses.
According to a report by The PUNCH today October 30, the Financial Markets Dealers Association (FMDA) projected ₦2.81 trillion in inflows into the financial system during the week, largely from maturing financial instruments.
The projected inflows included ₦2.41 trillion from maturing Open Market Operations (OMO) instruments, ₦263.58 billion in Federal Government bond coupon payments and ₦130.72 billion from Treasury bills maturities.
These inflows add to the liquidity already available in the financial system, creating more funds for banks and other investors to deploy into government securities and money market instruments.
The SDF allows deposit-taking institutions to place excess funds with the CBN and earn interest on their balances. While the facility helps the apex bank manage liquidity, persistent high placements can also indicate that banks are finding limited or unattractive opportunities to deploy available funds elsewhere.
An emerging markets analyst, Ike Ibeabuchi, told The PUNCH that the preference for risk-free placements and government securities raises concerns about the banking sector’s contribution to business expansion, employment generation and wider economic activity.
However, the amount deposited at the SDF does not necessarily represent money that banks are unwilling to lend. Lending decisions also depend on credit risks, borrowers’ capacity to repay, regulatory requirements and the returns available from alternative investments.
At the October 28 auction, investors submitted ₦1.908 trillion in bids against the ₦800 billion offer, representing a subscription level of 2.38 times the amount advertised.
Despite the strong demand, the DMO allotted only ₦71.16 billion, rejecting approximately ₦1.84 trillion, or 96.3% of total subscriptions. The one-year Treasury bill attracted the largest demand, accounting for about ₦1.84 trillion in bids, but only ₦38.38 billion was accepted.
The auction also recorded lower stop rates across all three maturities. The 91-day Treasury bill declined to 15.40% from 15.50%, while the 182-day instrument eased to 15.79% from 15.80%. The 364-day rate fell to 15.80% from 15.90% at the previous auction.
The reduced allotment suggests the DMO was unwilling to accept the borrowing costs demanded by investors, despite the substantial funds available in the market.
For businesses, the wider concern is whether the liquidity surplus can translate into increased access to affordable credit. Although banks’ placements at the CBN provide a relatively low-risk investment option, productive sectors such as manufacturing, agriculture and small businesses require more financing to expand operations, create jobs and support economic growth.
The challenge for monetary and fiscal authorities is therefore not simply the availability of money in the banking system, but how to encourage its deployment into productive investments while maintaining financial stability.
