Bank deposits with the CBN fall to N91.1 trillion amid excess liquidity.

Kayode Tokede

After a period of excess liquidity in the financial sector, banks’ deposits with the Central Bank of Nigeria (CBN) fell to N91.1 trillion in May 2026, a decline of about 0.4 percent from N92.32 trillion in April 2026.

Deposits are made through the Standing Deposit Facility (SDF) window, which offers attractive overnight interest, making it a preferred way for banks to earn risk‑free returns.

According to data released by the CBN, Nigerian banks deposited approximately N128.92 trillion in March 2026. In February 2026, deposits with the CBN were N61.11 trillion, a 16.18 percent increase over the N52.6 trillion recorded in January 2026.

During the first five months of 2026, banks deposited an estimated N425.86 trillion, up more than N53.5 trillion compared with the first five months of 2025.

THISDAY reported that an estimated N336.2 trillion was deposited with the CBN in 2025, a 777.2 percent year‑over‑year increase over the N38.33 trillion deposited in 2024.

The reduction in deposits with the CBN can be linked to the recent cut in the Monetary Policy Rate (MPR) to 26.50 percent in February 2026, down from 27 percent in 2025.

It also reflects the lower opportunity cost of holding cash with the CBN compared to lending it out in the market.

The Monetary Policy Committee (MPC) of the CBN, in February 2026, maintained the Standing Facilities Corridor around the MPR at +50 / –450 basis points.

Analysts at Cordros Research, in a report following the November 24‑25 MPC meeting, noted that adjusting the asymmetric corridor to +50 / –450 basis points (previously +250 / –250 basis points) around the MPR indicates a reduction in interest rates for the Standing Lending Facility (SLF) and the SDF to 27.5 percent (previously 29.5 percent) and 22.5 percent (previously 24.5 percent), respectively.

“The adjustment is expected to ease monetary conditions and strengthen banks’ private‑sector credit expansion,” the analysts said.

In contrast, banks borrowed an estimated N43.58 billion from the CBN in May 2026, a 54.2 percent decline compared with the N95.2 billion borrowed in April 2026.

Nigerian banks borrow from the CBN through its Standing Lending Facility (SLF) window to meet critical overnight obligations.

Analysts attribute the N425.86 trillion deposit to high credit‑risk concerns and a preference for the safety of the regulator window rather than lending into the real sector.

Highcap Securities Vice President David Adnori said that, amid uncertainty in the business environment, banks look for viable opportunities with prime borrowers across the country and therefore prefer lending to the CBN, which is less likely to default on its obligations to lenders, including suppliers.

He added, “Where prime borrowers are not widely available, banks repricing risks to accommodate non‑prime borrowers that are still in good shape to absorb shocks and high lending rates.”

Adnori noted further that, “In the absence of these viable opportunities, banks resort to short‑term interbank placements and the CBN’s standing deposit window to temporarily hold their cash. Clearly, what happened in March 2026 was a case of banks taking advantage of a better interest rate available in the CBN’s standing deposit window to preserve their excess liquidity.”

“The CBN is aware of this development, hence it decided to sustain the floor in the MPR corridor at –450 basis points around the MPR, to derisk the interest‑rate environment while encouraging deposit‑money banks to place excess liquidity in the CBN rather than reckless lending,” he said.

“The February 2026 decision of the MPC set the MPR at 26.5 percent, with the retention of its corridor at +50 basis points and –450 basis points around the MPR. So, the major factor is the uncertainty in the business environment, arising from the global energy crisis as a result of the US and Israel war on Iran.”

He added, “The implications are very clear: Banks will be better accommodated in the CBN’s standing deposit window to remove an obvious threat to the current high‑yield environment that remains the reason for high inflow from foreign portfolio investors, ensuring better exchange‑rate management. Non‑performing loans in banks are better managed. Only viable and bankable opportunities are better pursued by banks.”

“Businesses in dire need of long‑term capital will prepare themselves to access more stable funding opportunities in the capital market. Greater access to the debt capital market. High interest rates will persist in the economy. The desire to see inflation at single digits by all economic agents and the government in Nigeria could be further delayed. Economic growth could be challenged, as households and firms struggle to manage the likely resurgence in higher cost of living.”