The Deposit Money Banks’ excess liquidity with the Central Bank of Nigeria hit N9.39 trillion in January 2025, up from the N1.29 trillion deposited in January 2024, an indication of a healthier liquidity in the financial system.
This represents an increase of 627.17 per cent when compared to the amount the banks deposited in January 2024, the apex bank’s financial data has revealed.
DMBs, which comprise commercial banks and merchant banks, use the Standing Deposit Facility to deposit excess funds with the apex bank, and this deposit attracts interest.
The strong patronage at the SDF confirmed healthier liquidity in the Nigerian banking system.
These banks also use the Standing Lending Facility, a short-term lending window for banks and merchant banks, to access liquidity from the apex bank to run their day-to-day business operations.
The CBN had shifted to a single-tier remuneration structure for the SDF.
Previously, deposits of up to a certain threshold, for example, N3 billion, earned a higher interest rate, while amounts exceeding that threshold earned a lower rate.
However, under the new policy, all SDF deposits are remunerated at the Monetary Policy Rate (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.
It was gathered that the total amount deposited in January 2025 by DMBs surpassed the amount borrowed from the CBN.
DMBs, in January 2025, borrowed the sum of N9.15 trillion from the CBN, about a 158.5 per cent increase over the N3.54 trillion borrowed in January 2023.
In 2024, DMBs deposit to CBN increased significantly to N38.12 trillion, about a 210.15 per cent increase when compared to N12.29 trillion in 2023.
SDF in 2024 witnessed significant patronage as banks and merchant banks’ deposits reached the highest peak of about N8.12 trillion in August 2024
The increase is coming against the backdrop of CBN’s removal of the cap on the remunerative policy, among others.
The CBN governor, 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.
“DMBs, in January 2025, borrowed the sum of N9.15 trillion from the CBN, about a 158.5 per cent increase over the N3.54 trillion borrowed in January 2023.”
The CBN 2024 introduced a single-tier remuneration structure for its SDF, which applies to DMBs’ large deposits exceeding N3 billion.
In a circular addressed to DMBs, CBN fixed SDF at 26.5 per cent, representing a sharp increase from the previous 19 per cent.
The policy change was communicated through a circular issued by the Director of the Financial Markets Department, CBN, Omolara Duke.
CBN had maintained that the strong patronage at the SDF was an indication of 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 the yield on Treasury bills (T-Bills) and DMBs are looking for risk-free investments, which SDF has provided since the MPR hike.
Statistics provided by the Central Bank of Nigeria have revealed that commercial and merchant banks have borrowed N8.2 trillion from the apex bank in the first 17 days of business activities in January 2025.
According to the CBN, this is one of the actions to tackle liquidity challenges in the financial sector and boost lending to the real sector of the Nigerian economy.
Within the period under review, banks and merchant banks’ deposits in CBN stood at N6.69 trillion, amid the banks’ efforts to lend to the real sector of the economy.
Commercial banks and merchant banks access lending from the CBN using the Standing Lending Facility window.
They also deposit excess liquidity with the apex bank using the Standing Deposit Facility window.
The CBN provides the SLF, a short-term lending window for banks and merchant banks, to access liquidity to run their day-to-day business operations.