Market News

BY Kayode Tokede 

Following the increasing level of threat in Nigeria’s business environment arising from insecurity, supply chain problems, inflation, poor purchasing power and low level of productivity, banks and merchant banks have shunned lending to the real sector.

Rather, the banks’ deposit with the Central Bank of Nigeria (CBN) increased to N17.83 trillion in April 2025, a significant growth of 243 per cent when compared to N5.2 trillion in March 2025. 

Financial data released by the CBN revealed that banks and merchant banks in the first four months of 2025 deposited N37.05 trillion with the central bank, up by 1549 per cent year-on-year (YoY) from N2.25 trillion in the first four months of 2024.

According to the Standing Deposit Facility (SDF) data by the apex bank, banks’ deposit since the beginning of the year has witnessed a steady increase as uncertainty continued to mount on interest rate and inflation.

The SDF is a lower corridor of the Monetary Policy Rate (MPR) at which Deposit Money Banks (DMBs) and discount houses can deposit their money overnight with the CBN for an interest rate.

Another window, the Standing Lending Facility (SLF), an upper corridor monetary policy rate at which DMBs and discount houses can borrow money from the CBN at a pre-specified rate, typically the benchmark policy rate plus a margin.

THISDAY checks revealed that the total amount borrowed by DMBs surpassed the amount deposited with the CBN in the first four months of 2025.

The total amount borrowed stood at N54.96 trillion while the total amount deposited stood at N37.05 trillion in the period under review. 

THISDAY analysis of the financial data showed that the N17.83 trillion deposited in April 2025 was the highest amount banks and merchant banks deposited with CBN.

Further analysis revealed that the applicable rates for the SDF and SLF in 2023 increased by 50 basis points to 11.50 and 19.50 per cent, respectively, following the hike in the policy rate by 50 basis points to 18.75 per cent in June 2023.

The interest rate at which banks and merchant banks borrow from CBN changed in 2024 amid the Monetary Policy Committee (MPC) hike in MPR or interest rate.

In 2024, the MPC members voted to increase interest rate from 18.75 per cent to 27.50 per cent amid its mandate to tackle inflation rate and unstable Naira at the foreign exchange market. However, the MPR has remained at 27.50 per cent since the beginning of 2025 as the committee continued to tackle inflation rate. 

The CBN had also in 2024 shifted to a single-tier remuneration structure for the SDF. Previously, deposits up to a certain threshold, for example N3 billion, earned a higher interest rate, while amounts exceeding that threshold earned a lower rate.

Under the new policy, all SDF deposits are remunerated at the MPR minus 100 basis points. With the current MPR at 27.5 per cent, this results in an SDF rate of 26.5 per cent.

In 2024, banks and merchant banks deposit to CBN increased significantly to N38.12 trillion, about 210.15 per cent increase when compared to N12.29trillion in 2023.

SDF in 2024 witnessed significant patronage as banks and merchant banks deposit reached highest peak of about N8.12 trillion in August 2024

The increase is coming on the backdrop of CBN removal of the cap on the remunerable policy, among others.

The CBN governor, Mr. Olayemi Cardoso had disclosed that the apex bank removed the cap on the remunerable SDF to increase activity in the SDF window and manage liquidity.

In a circular addressed to DMBs, CBN said the SDF will now be 26.5 per cent. This represents a sharp increase from the previous 19per cent. The policy change was communicated through a circular issued by Director of the Financial Markets Department, CBN, Omolara Duke.

The circular instructed all authorised financial institutions to acknowledge and implement the updated structure, which supersedes the previous framework.

The circular reads, “”At the 298th meeting of the Monetary Policy Committee (MPC), the committee retained the asymmetric corridor at +500/-100 around the MPR and removed the 2nd tier of the standing deposit facility (SDF) of 19per cent on deposits above N3 billion.

“The SDF will now be remunerated on a single-tier basis, which is currently the monetary policy rate (MPR) minus 100 basis points. Consequently, all SDF will be remunerated at the prevailing SDF rate of 26.50per cent. This circular supersedes the earlier circular on the asymmetric corridor indicated below

“Superseded circular: Ref: FMD/DIR/PUB/CIR/001/017, dated August 26, 2024 Subject: Operationalisation of the SDF symmetric corridor All authorised dealers are required to take note of this new development. This circular takes immediate effect.”

CBN had maintained that the strong patronage at the SDF confirmed healthier liquidity in the banking system, stressing that banks and merchant banks were in search of better yields.

The current inflation rate in Nigeria is above yield on Treasury bills (T-Bills) and DMBs are looking for risk-free investments, which SDF has provided since MPR hike.

Analysts attributed the surge in banks deposit with CBN to uncertainty in the business environment over rising insecurity, among others.

 “The most significant factor is the increasing level of threat in the environment of business in Nigeria, arising from: insecurity, supply chain problems, rising inflation and poor purchasing power, low level of productivity, rising unemployment, liquidity overhang and paucity of risk-free financial instruments,” said Investment Banker & Stockbroker, Tajudeen Olayinka,

According to him, “As a result, most banks prefer to be debited by CBN for running short of LDR limit, as against extending credit to businesses that are finding it difficult to survive. It is all about managing risk.”

On his part, the Chief Operating Officer of InvestData Consulting Limited, Mr. Ambrose Omordion stated that CBN is the last resort where DMBs deposit excess liquidity that comes with an attractive yield.

He explained that, “When a bank goes to borrow from CBN, it is a sign the bank is having liquidity challenges. The latest report by CBN revealed stability in the banking sector and most of them have a strong capital base to lend to the real sector and expand.

“The LDR policy of CBN is meant to encourage banks to lend to the real sector and of recent, the private sector lending has witnessed a trajectory and a bit of disruption due to a hike in global interest has slowed down customers borrowing from the banks. The hike in interest rate has impacted the cost of funds which is expected to change the direction on who banks lend to customers.

“For me, the improvement in deposit with CBN is a sign that these banks have enough liquidity and are taking preventive measures to checkmate Non-performing Loans (NPL).  In addition, the high interest of seven per cent depositing with CBN is also another alternative for banks to make more money and improve on profitability.”

Speaking, the Vice President, Highcap Securities, Mr. David Adnori said banks and merchant banks in the first four months were maintaining effective risk management in a move to cut down NPL.

He added: “banks and merchant banks with an increasing deposit from customers prefer to lend to CBN rather than their customers to maintain NPL below five per cent threshold.”