Excess Liquidity in the System Raises Banks’ Deposits with CBN By 460% to N52.6tn in January 2026

Kayode Tokede

With Nigerian banks’ growing preference for placing surplus funds with the Central Bank of Nigeria (CBN) rather than expanding credit to the real sector, deposits by commercial and merchant banks with the apex bank surged 460 per cent year-on-year to N52.6 trillion in January 2026.

The surge in banks’ deposits with the CBN reflected excess liquidity in the financial system, attractive overnight interest rates, and continued risk-averse lending behaviour.Latest data from the CBN showed that the N52.6 trillion in deposits by banks with the apex bank as at January 2026 represented an increase of N43.21 trillion over the N9.39 trillion recorded in the corresponding period of 2025.

Banks and merchant banks typically deposit excess cash with the CBN through the Standing Deposit Facility (SDF) window, which offers overnight interest at relatively attractive rates.Market operators say the combination of elevated policy rates and lingering credit risk concerns has made the SDF a safe and profitable short-term option.

THISDAY learnt that total deposits by banks and merchant banks with the CBN rose to an estimated N336.2 trillion in 2025, representing a year-on-year increase of 777.2 per cent compared with N38.33 trillion recorded in 2024.Analysts described the trend as a clear signal of heightened caution within the banking system.According to market analysts, the surge in SDF placements reflects concerns about credit quality, weak risk appetite, and the relative safety of the CBN window amid macroeconomic uncertainty.

Rather than lend aggressively to the private sector, many banks have opted to preserve capital and earn risk-free returns.In 2025, the CBN adjusted the standing facilities corridor around the Monetary Policy Rate (MPR) to +50 basis points and -450 basis points from the previous +250/-250 basis points, following a reduction in the MPR to 27 per cent from 27.5 per cent.The move signalled a cautious shift toward easing while maintaining a tight overall policy stance.

A report by Cordros Research after the November 24–25, 2025, meeting of the Monetary Policy Committee (MPC), had noted that the SDF rate was adjusted to 22.5 per cent from 24.5 per cent, while the Standing Lending Facility (SLF) rate fell to 27.5 per cent from 29.5 per cent, in line with the revised corridor around the MPR.Cordros Research observed that the MPC retained the MPR at 27 per cent, contrary to expectations of a 100 basis points cut, despite recent disinflationary trends and the appreciation of the naira.

According to the MPC, inflation remained elevated at double-digit levels, necessitating the maintenance of high interest rates to consolidate the disinflation process.

The research firm noted that while the asymmetric corridor adjustment signalled an easing bias, it also reflected the Committee’s cautious approach.

“This indicates a reduction in interest rates for the SLF and the SDF, which is expected to ease monetary conditions and support banks’ private sector credit expansion,” the report stated.

Looking ahead to 2026, Cordros Research analysts expect inflationary pressures to continue moderating, supported by sustained naira stability, improved agricultural harvests, and relatively stable petroleum prices.

However, they cautioned that with inflation likely to remain in double digits, the pace of interest rate cuts would remain gradual.

For now, the strong growth in banks’ deposits with the CBN highlights the tension between abundant liquidity and subdued risk appetite, raising fresh questions about how quickly monetary easing can translate into stronger credit growth and real sector activity.