The Deposit Money Banks’ (DMBs) excess liquidity with the Central Bank of Nigeria (CBN) 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 (SDF) 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 (SLF), 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.
As gathered by THISDAY, 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, Mr. 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.
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.
Investment Banker & Stockbroker, Tajudeen Olayinka stated that the surge in DMBs’ deposit with CBN in January 2025 was on the backdrop of uncertainty in the business environment.
He stated, “The most significant factor is the increasing level of threat in the environment of business in Nigeria, arising from: insecurity, supply chain problems, rising inflation and poor purchasing power, low level of productivity, rising unemployment, liquidity overhang and paucity of risk-free financial instruments.”
He added “As a result, most DMBs prefer to be debited by CBN for running short of LDR limit, as against extending credit to businesses that are finding it difficult to survive. It is all about managing risk.”
Also commenting, Vice President Highcap Securities, Mr. David Adnori, stated: “The development points to lack of liquidity on the part of banks. Monetary policy has been tightening and this has led to low liquidity. It is cheaper for banks to deposit with the CBN.
“We cannot continue to tighten because it will reflect economic growth,” he added.
Kayode Tokede
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