Excess liquidity in the banking sector is demonstrated by the high increase in bank deposits with the Central Bank of Nigeria (CBN) of 783.7 percent year-over-year (YoY) to N79.8 trillion in the first seven months of the year (7m’25) from N9.03 trillion in the equivalent period of 2024 (7m’24). Repurchase (Repo) lending and the Standing Lending Facility (SLF) are the two short-term lending windows the CBN offers banks. It lends to banks through the SLF at an interest rate 500 basis points (bpts) higher than the MPR. It also lends to banks through the Repo arrangement, which entails buying bank securities with the intention of selling them back at a predetermined date and typically at a higher price. Conversely, the apex bank offers an interest rate of MPR minus 100 bpts and takes deposits from banks via its Standing Deposit Facility (SDF).
Additionally, trend analysis revealed that banks’ deposits in SDF increased from N19.22 trillion in the first quarter of 2025 to N49.68 trillion in the second quarter (Q2’25), a 158.4 percent quarter-over-quarter (QoQ) increase.
Bank deposits decreased by 29.2 percent from N15.4 trillion in June 2025 to N10.9 trillion in July.
The high bank patronage of the SDF is a result of the CBN’s decision to switch to a single-tier compensation structure for the SDF last year, in addition to the excess liquidity in the banking sector. With the current MPR of 27.5 percent, the SDF rate was 26.5 percent. The policy required that all SDF deposits be paid at the Monetary Policy Rate (MPR) minus 100 basis points. However, banks’ borrowing through the SLF decreased from N75.19 trillion in 7m’24 to N66.47 trillion in 7m’25, a YoY decrease of 11.6%.
Nonetheless, trend analysis revealed that banks’ borrowing through the SLF increased by 61%, quarter over quarter, from N9.38 trillion in Q1 of 25 to N50.46 trillion in Q2 of 25. Bank borrowings decreased by 245.3 percent from N1.92 trillion in June 2025 to N6.63 trillion in July on a monthly basis.
The decrease in bank borrowing from the CBN is a reflection of the interbank money market’s liquidity issues.
During that time, the apex bank often sold Treasury Bills (TBs), Open Market Operations (OMO), and other securities to mop up liquidity.
CBN sold N11.53 trillion worth of OMO TBs in 7m’25, up 75.2 percent from N6.58 trillion in 7m’24, according to Vanguard’s data from the apex bank. The average interest rate on collateralized (open buy back, or OBB) loans increased from 25.75 percent at the end of July 2024 to 31.6 percent at the end of July 2025, reflecting a notable increase in the cost of funds in the interbank money market.
