By Elizabeth Adegbesan
Banks’ deposit with the Central Bank of Nigeria, CBN, rose sharply by 783.7 percent, year-on-year, YoY, to N79.8 trillion in the first seven months of the year (7m’25) from N9.03 trillion in the corresponding period of 2024 (7m’24), indicating excess liquidity in the banking system.
CBN has two short term lending windows for banks, namely, the Standing Lending Facility (SLF) and Repurchase (Repo) lending.
It lends money to banks through the SLF at interest rate of 500 basis points (bpts) above the Monetary Policy Rate (MPR), and also lends money to banks through Repo arrangement, which involves the purchase of banks’ securities with the agreement to sell back at a specific date and usually for a higher price.
On the other hand, the apex bank accepts deposits from banks through its Standing Deposit Facility (SDF) and pays an interest rate of MPR minus 100 bpts.
Trend analysis also showed that banks’ deposits in SDF surged by 158.4 percent, quarter-on-quarter (QoQ) to N49.68 trillion in the second quarter of 2025 (Q2’25) from N19.22 trillion in Q1’25.
In July, banks deposited N10.9 trillion, down by 29.2 percent from N15.4 trillion in June 2025.
In addition to the excess liquidity in the banking system the strong patronage of the SDF by banks reflects the effect of CBN’s shift to a single-tier remuneration structure for the SDF last year.
The policy stipulated that all SDF deposits are remunerated at the Monetary Policy Rate (MPR) minus 100 bpts and with the current MPR at 27.5 percent, this resulted in an SDF rate of 26.5 per cent. On the other hand, banks’ borrowing through the SLF declined by 11.6 per cent, YoY, to N66.47 trillion in 7m’25 from N75.19 trillion in 7m’24.
However, trend analysis showed that banks’ borrowing through the SLF rose by 61 per cent, QoQ, to N50.46 trillion in Q2’25 from N9.38 trillion in Q1’ 25.
On a monthly basis, banks’ borrowings stood at N6.63 trillion in July, representing a 245.3 percent decline from N1.92 trillion in June 2025.
The decline in banks’ borrowing from the CBN reflects liquidity constraints in the interbank money market.
The apex bank conducted a liquidity mop up through regular sale of Open Market Operations, OMO, treasury bills (TBs) during the period.
Vanguard’s findings from the apex bank showed that CBN sold N11.53 trillion worth of OMO TBs in 7m’25, up 75.2 percent from N6.58 trillion in 7m’24. Likewise, cost of funds in the interbank money market recorded a significant increase, with the average interest rate on Collateralized (Open Buy Back, OBB) lending at 31.6 per cent at the end of July 2025, up from 25.75 percent at the end of July 2024.
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