Banks Flood CBN with N79.8 Trillion in Deposits Amid Surging Liquidity and Tight Money Market

Banks’ deposits with the Central Bank of Nigeria (CBN) skyrocketed by 783.7% year-on-year to N79.8 trillion in the first seven months of 2025, up from N9.03 trillion during the same period in 2024. This surge is attributed to excess liquidity in the banking system. The CBN offers two main deposit and lending windows: the Standing Deposit Facility (SDF), where banks place excess funds at MPR minus 100 basis points, and the Standing Lending Facility (SLF), where banks borrow at MPR plus 500 basis points. The Repo facility, which allows CBN to temporarily buy securities from banks, also contributes to this dynamic.

A closer look at the data shows that deposits under the SDF soared 158.4% quarter-on-quarter to N49.68 trillion in Q2 2025 from N19.22 trillion in Q1. July alone saw N10.9 trillion deposited, though down 29.2% from June’s N15.4 trillion. This increasing SDF patronage stems from the CBN’s shift to a unified remuneration structure, which now pays 26.5% on deposits (MPR at 27.5% minus 100 bpts). Meanwhile, bank borrowing through the SLF dropped 11.6% YoY to N66.47 trillion, even though it jumped significantly—by 61% QoQ—to N50.46 trillion in Q2 2025.

Despite the yearly drop, SLF borrowing rose sharply in Q2, signaling short-term liquidity needs. Interestingly, July recorded N6.63 trillion in SLF borrowings, a massive spike of 245.3% from N1.92 trillion in June. These figures reflect tightening liquidity conditions in the interbank money market. The CBN responded with aggressive liquidity mop-ups via the sale of Open Market Operations (OMO) treasury bills, totaling N11.53 trillion in 7m’25—up 75.2% from the N6.58 trillion sold in the same period of 2024.

The heightened monetary activity also drove up interest rates across markets. The average rate on collateralized Open Buy Back (OBB) lending reached 31.6% in July 2025, compared to 25.75% in July 2024. This suggests the apex bank’s monetary tightening is having a direct impact on short-term funding costs, further discouraging banks from borrowing and instead pushing them to park more funds with the CBN. Overall, these trends highlight the banking sector’s cautious stance amid a volatile financial environment shaped by tight policy and elevated inflationary pressures.

Source: Vanguard