Deposit money banks (DMBs) are increasingly avoiding the Central Bank of Nigeria’s (CBN’s) Standing Lending Facility window, even as their opening balances shrink to multi-month lows, the apex bank’s latest liquidity data have revealed.
Between September 18 and 22, 2025, system liquidity swung violently. On Thursday, September 18, the opening balances of banks and discount houses stood at N582.80 billion, only to tumble to N215.01 billion the next day and crash further to N163.80 billion by Monday, September 22.
The drop was dramatic, suggesting tightening liquidity pressures across the sector. For banks that rely on large cushions to fund their daily operations, such a steep contraction is not trivial; it can translate into rising interbank borrowing costs and ripple effects across credit markets.
Banks avoid the CBN lending window
Yet, instead of turning to the CBN’s Standing Lending Facility (SLF) for short-term funding, banks sat on the sidelines.
Not a single uptake was recorded in the SLF, repo operations, or reverse repos during the three-day stretch, a development analysts say, which reflects both caution and cost sensitivity.
Borrowing overnight from the CBN remains expensive, and banks appear unwilling to incur those costs unless absolutely necessary.
Deposit window dominates activity
The Standing Deposit Facility (SDF) — the apex bank’s parking lot for excess liquidity — was buzzing. Banks placed N2.36 trillion with the CBN on September 18, N1.45 trillion on September 19, and N1.69 trillion by September 22, CBN’s data show.
The pattern reveals a telling paradox: even as opening balances declined, lenders still preferred to lodge excess cash with the regulator rather than recycle it through interbank loans or credit creation.
“The preference for the SDF underscores the risk aversion at play,” said Mr. Blakey Ijezie, a chartered accountant and financial strategist.
“Banks are prioritising safety and liquidity preservation over lending, a posture that could choke private sector credit further,” the founder of Okwudili Ijezie & Co added.
The government’s debt operations added another layer of complexity. On September 18, the Debt Management Office successfully raised N345.09 billion via Treasury Bills and Federal Government Bonds, effectively siphoning liquidity from the system.
But by September 22, maturities worth N259.04 billion were repaid to investors, alongside a smaller N78 billion repayment earlier in the week, partially replenishing market balances.
This ebb and flow of borrowings and repayments created temporary liquidity injections, though not enough to offset the steep decline in banks’ opening positions.
Implications for interbank and FX markets
For market watchers, the trends raise a red flag: if opening balances continue to shrink without commensurate injections, interbank rates could spike in the coming weeks.
Already, with the naira under pressure in both the official and parallel markets, the cost of liquidity is under scrutiny. Any tightening in short-term funding could amplify exchange rate volatility and dent investor confidence.
The CBN is walking a delicate tightrope. On one hand, it must absorb excess liquidity to rein in inflation and protect the naira.
On the other hand, it must avoid over-tightening that risks choking the credit channel and destabilising banks’ daily operations.
The absence of demand for the lending window suggests banks are either finding alternative sources of funding or are deliberately shrinking their balance sheets to weather volatility.
Borrowing costs remain punitive
The broader credit environment makes the picture even starker. Fresh CBN disclosures show prime lending rates averaging 25.5%–31%, with maximum rates in some cases hitting 46%. Savings deposits, meanwhile, yield just 8.25% on average, with demand deposits fetching less than 1%.
For corporates in oil and gas, construction, or general commerce, borrowing at rates north of 30% is simply prohibitive. For households, saving at single-digit returns in an economy with inflation above 20% erodes wealth in real time.
This yawning spread between what banks pay and what they charge reflects structural inefficiencies — from elevated cash reserve requirements to Nigeria’s high sovereign risk premium. The result is a paradoxical financial system: flush with liquidity when parked at the CBN, but starved of affordable funding for productive sectors.
