Banks’ Cash Deposits with CBN Drop 41.6% as Borrowing Hits ₦820bn Amid Tight Liquidity
Nigeria’s banking sector experienced a dramatic liquidity shift last week as commercial banks slashed excess cash deposits with the Central Bank of Nigeria (CBN) by 41.6 percent, while borrowing from the apex bank’s lending window surged over fourfold. According to a weekly report by Coronation Merchant Bank, banks’ placements at the CBN’s Standing Deposit Facility (SDF) fell to ₦539.12 billion from ₦923.68 billion on August 18, 2025. Conversely, borrowings through the Standing Lending Facility (SLF) jumped from ₦179.08 billion to ₦821.50 billion by August 22, signaling acute short-term funding pressures.
Analysts attribute this liquidity squeeze to aggressive mop-up operations by the CBN, particularly through its Open Market Operation (OMO) auction. The auction, held on August 21, offered ₦600 billion in 89-day and 124-day tenors, attracting significant investor interest in longer-dated bills. Subscriptions for the 124-day paper hit ₦1.01 trillion against a ₦300 billion offer, prompting the CBN to allot ₦894.94 billion at a stop rate of 25.99 percent, almost triple its initial target.
In contrast, demand for the 89-day bill was extremely weak, with bids totaling just ₦2.25 billion compared to the ₦300 billion offered. The bid-to-offer ratio stood at a meager 0.01x, leading the CBN to allot only ₦2.25 billion at a stop rate of 25.50 percent. This disparity underscores a strong investor preference for medium-term, higher-yielding instruments in an environment of tightening liquidity and elevated return expectations.
Despite these interventions, system liquidity averaged ₦366.94 billion for the week, up from ₦62.94 billion previously. However, analysts warn that this headline improvement masks significant intra-week volatility and growing reliance on CBN’s short-term funding facilities. The central bank’s liquidity management strategy aims to curb inflation and stabilize the naira as foreign exchange reforms continue to reshape monetary conditions.
Experts suggest that persistent OMO auctions and potential delays in fiscal injections could further strain interbank markets and credit availability in the coming weeks. “Liquidity management remains a critical lever for the CBN,” noted a senior economist at Nova Capital Markets. “By mopping up excess liquidity, the bank seeks to rein in inflationary pressures and reduce demand-side FX pressure, even if it means temporary stress in the banking system.”
Source: The sun