The first week of November closed with Nigeria’s money-market system overflowing with excess cash deposited at the Central Bank of Nigeria (CBN) by banks as of Friday, November 7, 2025.
This suggests that the deposit money banks (DMBs) prefer risk-free overnight parking at the CBN, which offers them a 24.8% interest rate rather than lending.
Fresh data published by CBN on Friday revealed that the banking system was awash with cash throughout the week ending November 7, 2025.
Banks collectively placed N4.816 trillion in the Standing Deposit Facility (SDF) on Friday, up from N4.424 trillion on November 5, signalling one of the strongest days of surplus liquidity this quarter.
Between November 3 and 5, there was a steady buildup of excess cash. Cash deposits with CBN rose from N2.301 trillion on October 31 to N2.916 trillion on November 4 and further rose to N2.994 trillion on November 5.
On the surface, such volumes suggest lots of cash in the banking system; so, it looks like there is no liquidity problem. However, the small subset of large banks holding excess reserves continues to deposit with the apex bank, while smaller institutions face selective funding pressures, keeping interbank activity muted.
Primary-Market flows boost system cash
Mid-week financial data published by the apex bank show a key liquidity-injection channel through government debt operations.
On Thursday, November 6, the Debt Management Office (DMO) raised N546.24 billion via primary-market sales of Treasury bills and bonds, while simultaneously repaying N662.76 billion in maturing issues.
The net effect — roughly N116.52 billion returned to the banking system — was modest but positive for short-term liquidity.
This injection coincided with a steady build-up in banks’ opening balances, which rose sharply from N141.11 billion (Nov 5) to N247.17 billion (Nov 7). Higher opening balances indicate larger intraday reserve buffers, showing that most banks preferred to retain cash rather than recycle it into the interbank or credit markets.
Surplus funds, minimal borrowing
At the same time, recourse to the Standing Lending Facility (SLF), the CBN’s emergency overnight borrowing window, remained negligible at N2.85 billion.
The near-zero SLF borrowing juxtaposed against N4.8 trillion in deposits paints a clear picture: banks are not short of liquidity; they are risk-averse.
In normal conditions, banks with surplus funds lend to those in temporary deficit through the interbank market. But persistent structural frictions — notably FX uncertainty, collateral constraints, and settlement mismatches — continue to make redistribution of liquidity difficult. As a result, money sits idle at the CBN earning the SDF rate, rather than financing credit or market positions.
Policy and market implications
The current liquidity profile gives the CBN room to sterilise excess cash through SDF or fresh OMO auctions if needed to keep rates aligned with its tightening stance. However, the persistence of such large deposit balances underscores weak monetary transmission — abundant liquidity is not translating into credit expansion or stronger interbank depth.
Money-market dealers expect overnight rates to remain soft in the near term, barring sudden fiscal withdrawals or large-ticket FX interventions. Still, the coexistence of high systemic liquidity and patchy access across banks could fuel intermittent volatility in call and repo rates.
Economists also highlight a strategic trade-off: while high SDF balances help the CBN manage inflationary liquidity, they simultaneously suppress interbank trading and credit momentum, blunting policy effectiveness. A sustained solution may require not just liquidity management, but structural reforms to improve risk sharing and collateral mobility within the financial system.
