CBN Reports Record N9.39tn Bank Deposits In January Amid Surging Liquidity

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In January 2025, Deposit Money Banks (DMBs) in Nigeria deposited a record N9.39 trillion in excess liquidity with the Central Bank of Nigeria (CBN), a sharp increase of 627.17% from N1.29 trillion a year earlier. This surge signals a healthier financial environment, underpinned by stronger liquidity in the banking sector. DMBs, which include commercial and merchant banks, utilize the Standing Deposit Facility (SDF) to place excess funds with the CBN, earning interest in return.

The rise in deposits reflects the banks’ preference for safer investments, as the CBN offers attractive remuneration through its SDF. The Standing Deposit Facility interest rate is now set at 26.5% following a policy change by the CBN, which removed previous caps and introduced a single-tier remuneration structure. This shift aims to boost liquidity management and incentivize increased participation in the SDF, aligning with the current economic context where inflation remains high.

Bank borrowing from the CBN also surged in January 2025, increasing by 158.5% to N9.15 trillion, compared to N3.54 trillion in January 2023. Despite higher borrowing, banks appear more inclined to deposit funds with the CBN than extend credit to businesses facing economic pressures. Factors such as insecurity, inflation, and low productivity are driving this cautious approach by the DMBs, according to experts.

Experts, including investment banker Tajudeen Olayinka, have highlighted that the preference for depositing funds with the CBN over lending to businesses is driven by increasing uncertainty in Nigeria’s business environment. The tight monetary policy, along with high inflation rates, has made the SDF a more attractive, risk-free investment for banks, contributing to the increase in deposits.

This trend comes amidst a broader tightening of monetary policy in Nigeria, which has led to concerns about the impact on economic growth. Experts like Vice President of Highcap Securities, David Adnori, warn that while depositing with the CBN might be cheaper for banks, continued tightening could undermine economic stability and growth.

Source: Arise news

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