Nigerian Banks Park Surplus Cash at CBN Lending Window as Interbank Market Stalls

Nigeria’s banking sector is swimming in cash, but instead of driving up lending between institutions, banks are choosing to park surplus funds with the Central Bank of Nigeria (CBN). Industry data for the week ended September 22, 2025, show muted interbank activity despite a liquidity glut, forcing deposit money banks (DMBs) to rely heavily on the apex bank’s Standing Lending Facility (SLF) to manage excess balances.

The SLF, a key liquidity management tool provided by the CBN, allows banks to borrow or deposit short-term funds, typically overnight. Analysts say the increased use of this window signals a growing disconnect between the country’s high banking liquidity and the real economy’s credit demand, as lenders appear reluctant to extend short-term credit to one another.

Money market liquidity opened the week at over ₦1.7 trillion, boosted by more than ₦300 billion in Open Market Operation (OMO) maturities, ₦2.2 trillion in Federation Account Allocation Committee (FAAC) inflows, and ₦79 billion in treasury bill maturities. Another ₦200 billion OMO repayment pushed the system’s net long position to an average of ₦2.36 trillion, up from ₦1.94 trillion the previous week. Despite this surge, banks opted for the CBN’s window rather than lending in the interbank market.

Funding rates showed little movement in response to the liquidity glut. The Overnight Nigerian Interbank Offered Rate (NIBOR) held at 26.83 percent, while the one-month tenor eased by 11 basis points. Meanwhile, the Nigerian Interbank Treasury Bills True Yield (NITTY) curve dropped sharply—by as much as 128 basis points on the one-year paper—reflecting renewed investor demand ahead of fresh treasury bill issuance designed to mop up excess liquidity.

Analysts believe system liquidity will remain buoyant, supported by upcoming OMO and treasury bill maturities and federal bond coupon payments. Unless the CBN intensifies liquidity management, short-term funding rates could ease further. For now, the trend of banks parking idle cash at the regulator’s window highlights a sluggish interbank market and raises fresh questions about how effectively monetary policy is being transmitted in Nigeria’s cash-rich but credit-shy financial system.

source: the sun