Banks Slash Central Bank Deposits by N2.22 Trillion After CBN Interest Rate Adjustment
Banks in Nigeria significantly reduced their deposits at the Central Bank of Nigeria (CBN) last month, pulling back N2.22 trillion from the apex bank’s Standing Deposit Facility (SDF). This followed a sharp adjustment of the asymmetric corridor by the Monetary Policy Committee (MPC), which pushed SDF rates down to 22.5 percent. Analysts say this move has discouraged banks from leaving idle cash with the central bank while encouraging more active market participation.
Data from the CBN shows that SDF placements, which averaged N3.25 trillion before the MPC’s last meeting, dropped to a weekly average of N2.22 trillion after the corridor shift. The banking system remained flush with liquidity, boosted by over N1.35 trillion in Treasury Bill maturities, N1.76 trillion in Open Market Operations (OMO) maturities, and N2 trillion from FAAC inflows, providing banks with ample cash for lending and investment.
The MPC surprised market watchers by holding the monetary policy rate at 27 percent despite inflation falling to 16.05 percent in October. Instead of cutting rates, the committee adjusted the asymmetric corridor from +50/-450, creating a strong disincentive for banks to leave funds idle at the central bank. Traders noted that the penalty of a -450 basis point corridor below the benchmark made depositing with the CBN far less attractive.
Between November 25 and December 5, total SDF placements reached N17.986 trillion, with a low of N1.058 trillion recorded in the period. This contrasts sharply with earlier months when the deposit window offered more favorable rates. Analysts observed that the corridor adjustment is the CBN’s strategy to redirect funds from passive deposits toward active interbank market trading, boosting liquidity circulation and lending.
Ayokunle Olubunmi, Head of Financial Institutions Ratings at Agusto & Co., explained that the CBN intends to push banks to lend more and reduce idle balances. Meanwhile, interbank rates responded to the liquidity shifts, with Overnight NIBOR falling 814 basis points month-on-month to 22.86 percent, and other tenors showing moderate declines. Analysts also noted that investor interest shifted to treasury instruments, reflecting confidence in market yields despite lower interbank rates.
source: Leadership