Amid Excess Liquidity, Banks Deposit with CBN Drops to N91.1trn

Kayode Tokede

Following excess liquidity in the financial sector, banks’ deposit with the Central Bank of Nigeria (CBN) stood at N91.1 trillion in May 2026, about 0.4 per cent decline from N92.32 trillion in April 2026.

Banks deposit excess cash with CBN using the Standing Deposit Facility (SDF) window and it comes with attractive interest overnight, making it a preferred option for banks to earn risk-free returns.  

The financial data released by the CBN revealed that Nigerian banks’ deposited about N128.92 trillion in March 2026.  In February 2026, banks deposit with CBN  stood at  N61.11  trillion or 16.18  per cent increase when compared to N52.6 trillion deposited in January 2026. 

In the first five months of 2026, banks deposited an estimated N425.86 trillion, an increase of over N53.5 trillion in the first five months of 2025. 

THISDAY had reported that an estimated N336.2 trillion was  deposited with the CBN in 2025, about 777.2 per cent YoY increase over N38.33 trillion deposited in 2024.

The decision by banks to reduce deposits with the CBN can be attributed to the recent cut in the Monetary Policy Rate (MPR) to 26.50 per cent in February 2026 from 27 per cent 2025. 

Also, this was driven by the lower opportunity cost of holding cash with the CBN compared to lending it out in the market. 

The Monetary Policy Committee (MPC) of the CBN in February 2026 had retained the Standing Facilities Corridor around the MPR at +50/-450 basis points.

Analysts at Cordros Research in a report after the November 24-25 MPC meeting stated that  by adjusting the asymmetric corridor to +50/-450basis points (Previous: +250basis points/-250basis points) around the MPR indicates a reduction in interest rates for the SLF and the SDF to 27.5per cent (Previous: 29.5per cent) and 22.5per cent (Previous: 24.5per cent), respectively. 

“The adjustment is expected to ease monetary conditions and strengthen banks’ private sector credit expansion,” they explained.  

On the other hand,  banks borrowed an estimated N43.58 billion from CBN in May 2026, about a 54.2 per cent decline when compared to N95.2 billion  in April 2026. 

Nigerian banks borrow from the CBN through its Standing Lending Facility (SLF) window in a move to meet critical overnight obligations. 

Analysts attributed the N425.86 trillion deposit to  high credit risk concerns and a preference for the safety of the regulator window rather than lending into the real sector.

The Vice President,  Highcap Securities, Mr. David Adnori said when there is so much uncertainty in the business environment, banks look for viable opportunities in prime borrowers around the country, and therefore, would prefer lending to CBN who is less likely to default hundred per cent in their obligations to lenders, including to their suppliers. 

He explained further that, “Where the prime borrowers are not largely available in good numbers, banks reprice risks to accommodate non prime borrowers that are still in good shape to accommodate shocks and high lending rates.” 

Adnori noted further that,  “In the absence of these viable opportunities, banks resort to short-term interbank placements and CBN’s standing deposit window to temporarily hold their cash. Clearly, what happened in March 2026 was a case of banks taking advantage of a better interest rate that is available in CBN’s standing deposit window to preserve their excess liquidity. 

“CBN itself is aware of this development, hence it decided to sustain the floor in the MPR corridor to -450 basis points around MPR, to derisk the interest rate environment, while encouraging deposit money banks to willingly place excess liquidity in CBN, as against reckless lending. 

“The February 2026 decision of MPC set MPR at 26.5per cent, with the retention of its corridor at +50 basis points and -450 basis points around MPR. So, the major factor is the uncertainty in the environment of business, arising from the global energy crisis as a result of US. and Israel war on Iran.”

He added, “The implications are very clear: Banks will be better accommodated in CBN’s standing deposit window to remove an obvious threat to the current high yield environment that remains the reason for high inflow from foreign portfolio investors, ensuring a better exchange rate management.  Non performing loans in banks are better managed. Only viable and bankable opportunities are better pursued by banks. 

“Businesses in dire need of long-term capital will prepare themselves to access more stable funding opportunities in the capital market. Greater access to the debt capital market. High interest rate will persist in the economy. The desire to see inflation at single digit by all economic agents and government in Nigeria could be further delayed. Economic growth could be challenged, as households and firms struggle to manage the likely resurgence in higher cost of living.”