Nigeria’s Central Bank has recorded a drop in demand deposits worth N210bn between January and March 2023.
According to data from the Central Bank of Nigeria, demand deposits fell from N20.12tn in January to N19.91tn by March.
Demand deposits are funds deposited in a bank account that can be withdrawn on-demand at any time. Typically, depositors use demand deposit funds to pay for everyday expenses.
The Corporate Finance Institute notes that people make large withdrawals during a financial crisis, leading to a decline in demand deposits and a decrease in the money supply, with banks left with less money to loan out.
The policy has led to a lack of trust in the banking system, with Nigerians making large withdrawals and hoarding cash. Despite the introduction of withdrawal limits by the CBN, withdrawals have continued. The hoarding of cash persists in the country, despite the introduction of the new redesign naira to prevent it.
The drop in demand deposits is a cause for concern for the country’s economy, as it limits the amount of money that banks can lend out to individuals and businesses. The decrease in the money supply can also lead to inflation and a slowdown in economic growth.
The CBN may need to review its policies and work to regain the trust of Nigerians in the banking system to prevent further declines in demand deposits
