On June 4, 2025, data from the Central Bank of Nigeria (CBN) revealed that commercial banks’ deposits with the apex bank skyrocketed by 1,578% year-on-year to N53.5 trillion in the first five months of 2025 (5M’25), up from N3.19 trillion in 5M’24, signaling a massive liquidity glut in the banking system. At the exchange rate of N1,579/$1, this equates to approximately $33.9 billion, a sum exceeding Nigeria’s 2024 external reserves of $32.7 billion. The surge, reported by Vanguard, reflects banks’ preference for parking excess funds in the CBN’s Standing Deposit Facility (SDF) at an attractive 26.5% interest rate, driven by cautious lending amid economic uncertainties, including 23.71% inflation and naira volatility.
The CBN’s SDF, which pays an interest rate of the Monetary Policy Rate (MPR) minus 100 basis points, saw unprecedented patronage. With the MPR steady at 27.5% since May 2025, the SDF rate stood at 26.5%, incentivizing banks to deposit surplus funds rather than lend to a risk-prone real economy. In Q1’25, banks deposited N19.22 trillion, a 956% increase from N1.82 trillion in Q1’24. April 2025 alone saw N16.75 trillion in SDF deposits, up 3,793% from N428.98 billion in April 2024, while May 2025 recorded N17.55 trillion, a 1,761% rise from N943.1 billion in May 2024. This trend, per Business Hallmark, stems from the CBN’s 2024 shift to a single-tier SDF remuneration structure, enhancing its appeal.
Conversely, banks’ borrowings from the CBN’s Standing Lending Facility (SLF), priced at MPR plus 500 basis points (32.5%), showed mixed patterns. Total SLF borrowings in 5M’25 rose 6.8% to N57.98 trillion from N54.29 trillion in 5M’24. In Q1’25, SLF usage surged 61% to N50.46 trillion from N31.25 trillion in Q1’24. However, April 2025 saw a 170% year-on-year decline to N4.5 trillion from N12.17 trillion, and May 2025 borrowings dropped 81% to N2.02 trillion from N10.87 trillion, indicating reduced liquidity needs as deposits swelled. The CBN also offers Repo lending, where it buys banks’ securities with a repurchase agreement, but specific data on Repo usage was not detailed.
The liquidity surge aligns with a broader money supply expansion, with M3 hitting N119.11 trillion in April 2025, up 22.9% from N96.97 trillion in April 2024, per CBN data. Net foreign assets rose 66.3% to N47.76 trillion, boosted by oil earnings and remittances, while net domestic assets grew 4.5% to N71.34 trillion. This liquidity, coupled with a 50% Cash Reserve Ratio (CRR), has led banks to prioritize risk-free SDF deposits over lending, as non-performing loans (NPLs) remain a concern at 4.9%, per Fitch Ratings. David Adnori of Highcap Securities noted banks’ risk management focus, preferring CBN deposits to maintain NPLs below 5%.
Posts on X, such as @vanguardngrnews and @Govimang, echoed the 1,578% surge, with @grok highlighting the CRR and SDF rates as stabilizing factors. However, analysts warn that excessive SDF reliance could starve the real sector of credit, with private sector loans dropping 7.4% to N74.9 trillion in February 2025 from N80.9 trillion in February 2024. Investment banker Tajudeen Olayinka cited insecurity, supply chain issues, and low productivity as deterrents to lending. Despite banks’ N140.97 trillion in customer deposits in 2024, up 51% from N93.5 trillion in 2023, N22.49 trillion remains sterilized as CRR, limiting lending capacity.
The CBN’s tight monetary stance, under Governor Olayemi Cardoso, has prioritized inflation control and naira stability, with the naira gaining 1.28% in the official market to N1,585.50/$1 in May 2025. However, the liquidity glut poses challenges, potentially fueling inflation if not managed. Cardoso’s removal of the SDF cap in 2024, raising the rate from 19% to 26.5%, has driven SDF patronage, per THISDAY. A balanced approach, possibly adjusting CRR or incentivizing real-sector lending, could mitigate risks while sustaining financial stability, as Nigeria navigates a projected 6% naira depreciation by mid-2026.
