Deposit Money Banks favour 24.8% risk-free returns over lending amid weak credit appetite…
Nigeria’s banking system ended the first week of November 2025 awash with excess liquidity, as commercial banks opted to deposit massive cash holdings at the Central Bank of Nigeria (CBN) instead of extending new loans.
Fresh data released by the apex bank on Friday, November 7, showed that Deposit Money Banks (DMBs) collectively placed ₦4.816 trillion in the Standing Deposit Facility (SDF) up from ₦4.424 trillion recorded on November 5, marking one of the strongest days of surplus liquidity this quarter.
The CBN’s SDF window, which allows banks to earn a 24.8 percent interest rate on overnight placements, has become the preferred parking ground for excess funds, underscoring a growing preference for risk-free returns amid cautious market sentiment.
Liquidity Build-Up Through the Week
Data indicated a steady accumulation of idle cash throughout the week. System deposits with the CBN rose from ₦2.301 trillion on October 31 to ₦2.916 trillion on November 4, before climbing further to ₦2.994 trillion on November 5.
While the numbers suggest abundant liquidity in the system, analysts say the picture is uneven, a handful of large banks hold substantial reserves, while smaller institutions still experience selective funding pressures. This has kept interbank activity muted, with limited redistribution of cash across the sector.
Debt Operations Add Mild Liquidity Boost
Mid-week data also highlighted liquidity injections from primary-market government debt operations. The Debt Management Office (DMO) raised ₦546.24 billion from Treasury bill and bond sales on Thursday, November 6, while simultaneously repaying ₦662.76 billion in maturing securities.
The net inflow of about ₦116.52 billion modestly improved short-term liquidity, lifting banks’ opening balances from ₦141.11 billion (Nov 5) to ₦247.17 billion (Nov 7). Higher opening balances typically indicate stronger reserve positions and reduced borrowing demand.
Minimal Borrowing, Heightened Risk Aversion
In contrast, borrowing from the CBN’s Standing Lending Facility (SLF) the emergency overnight window remained minimal at just ₦2.85 billion. The juxtaposition of record-high deposits against negligible borrowing reflects a market flush with liquidity but wary of lending risk.
Under normal conditions, banks with excess reserves would lend to others through the interbank market, but ongoing structural bottlenecks including FX volatility, collateral constraints, and settlement mismatches have restricted liquidity circulation.
Policy Outlook and Market Impact
The current liquidity backdrop provides the CBN with flexibility to sterilise excess cash through SDF absorption or fresh Open Market Operations (OMO) to maintain its tight monetary stance. However, analysts warn that the persistent accumulation of idle funds highlights weak monetary transmission, as abundant liquidity has yet to translate into broader credit growth or market depth.
Money-market dealers expect overnight rates to remain subdued in the near term, barring large fiscal withdrawals or foreign exchange interventions. But the coexistence of system-wide liquidity surpluses and uneven access among banks could trigger sporadic volatility in call and repo rates.
Economists caution that while high SDF placements help contain inflationary pressures, they also dampen interbank activity and credit expansion, reducing the effectiveness of monetary policy. They say a more lasting fix will require structural reforms that promote better risk-sharing, collateral mobility, and liquidity redistribution across Nigeria’s financial system.
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