Banks’ deposits with the Central Bank of Nigeria rose sharply by 783.7 percent, year-on-year, to N79.8 trillion in the first seven months of the year from N9.03 trillion in the corresponding period of 2024, indicating excess liquidity in the banking system.
The CBN has two short-term lending windows for banks: the Standing Lending Facility and Repurchase lending. It lends money to banks through the SLF at an interest rate of 500 basis points above the Monetary Policy Rate, and also lends through Repo arrangements, which involve purchasing banks’ securities with an agreement to sell them back at a specified date, usually at a higher price.
On the other hand, the apex bank accepts deposits from banks through its Standing Deposit Facility and pays an interest rate of MPR minus 100 bps.
Trend analysis showed that banks’ deposits in the SDF surged by 158.4 per cent, quarter-on-quarter, to N49.68 trillion in Q2’25 from N19.22 trillion in Q1’25. In July, banks deposited N10.9 trillion, down by 29.2 per cent 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 MPR minus 100 bps, and with the current MPR at 27.5 per cent, this resulted in an SDF rate of 26.5 per cent.
On the other hand, banks’ borrowing through the SLF declined by 11.6 percent, 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 percent, 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 per cent 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 liquidity mop-ups through regular sales of Open Market Operations treasury bills during the period.
According to Vanguard, report from the CBN showed that the bank sold N11.53 trillion worth of OMO TBs in 7m’25, up 75.2 per cent from N6.58 trillion in 7m’24.
Likewise, the cost of funds in the interbank money market recorded a significant increase, with the average interest rate on Collateralized (Open Buy Back) lending at 31.6 per cent at the end of July 2025, up from 25.75 percent at the end of July 2024.
