Financial Institutions Shun Real Sector Lending, Deposit N61.57trn with CBN in November

. N272.31trn deposited with CBN in 11 months

. Borrowed N69.54trn from CBN

Kayode Tokede

Following high interest rate, concerns about credit risk and economic uncertainty, banks have continued to shy away from lending to the real sector, depositing a whooping N61.57 trillion with the Central Bank of Nigeria (CBN) in November 2025.

The November deposits however represents a 4.6 per cent drop from N64.55 trillion deposited with the apex bank in October 2025.

Banks and merchant  banks deposit excess cash at CBN’s using the Standing Deposit Facility (SDF). The CBN in turn lends some of the deposit to any bank via its Standing Lending Facility (SLF) window to meet critical overnight obligations.

Analysis of financial data released by the CBN revealed that so far in 2025, banks deposited more cash than they borrowed.

According to the CBN data, banks and merchant banks’ deposits with CBN between January and November 2025 stood at N272.31 trillion, representing an increase of 792.1 per cent Year-on-Year ((YoY) from N30.52 trillion between January and November 2024.

On CBN’s lending, the data revealed that  banks and merchant banks borrowed an estimated N69.54 trillion from the   apex banks between January and November 2025, a decline of nearly 40 per cent YoY from N115.71 trillion borrowed between January and November 2024.

Earlier in  the year, SLF demand remained relatively high at N24.8 trillion in February 2025, slightly before easing to N16.49 trillion  in March 2025.

That mixed behavior showed that although system liquidity was strengthening, some institutions still required overnight support to rebalance their books.

Analysts attributed the growth to  high credit risk concerns and a preference for the safety of the regulator window rather than lending into the real sector.

“With high benchmark rates for lending and borrowing, and concerns about credit risk and economic uncertainty, banks may prefer the relative safety of the SDF. It offers them a known return rather than extending credit into uncertain territory. While banks eagerly placed excess funds with the apex bank, borrowing from the CBN slowed as pressures in the interbank market relaxed,” said Vice President, Highcap Securities Limited, Mr. David Adnori

The increase, he added, signalled a recovery in liquidity conditions and a more comfortable cash stance heading into 2026.

He explained that  the sharp surge in Nigerian SDF placements with the CBN, therefore, is more than a fleeting statistic.

“It captures a deeper tension between liquidity abundance and lending reluctance in the financial system. Beneath the numbers lies a complex web of caution, policy tightening, and an economy grappling with uncertainty.

“Banks are not acting irrationally. They are responding to signals from an environment marked by high inflation, exchange rate volatility, and weak consumer confidence,”  he added.

Amid drop in MPR to 27 per cent, the CBN adjusted the standing facilities corridor around the MPR to +50basis points/-450basis points from the  previous: +250basis -250basis points.

Cordros Research in a report after the November 24-25 MPC meeting stated that, “Contrary to our expectations of a 100basis points reduction, the MPC retained the MPR at 27per cent, despite the sharper disinflationary outturn in recent months and the appreciation of the naira.

“According to the MPC, inflation remains elevated at double-digit levels, underscoring the need to keep interest rates high to strengthen the disinflationary trend. However, the Committee signalled an easing bias by adjusting the asymmetric corridor to +50/-450basis points (Previous: +250basis points/-250basis points) around the MPR.

“This indicates a reduction in interest rates for the SLF and the SDF to 27.5per cent (Previous: 29.5per cent) and 22.5per cent (Previous: 24.5per cent), respectively. The adjustment is expected to ease monetary conditions and strengthen banks’ private sector credit expansion.

“Going into 2026, we expect inflation to continue easing as key drivers unwind, including sustained naira stability, better harvest outcomes and relatively stable petroleum prices. Nonetheless, in line with the MPC’s price stability goal and given that inflation is likely to remain in double digits in 2026, we believe the pace of interest rate cuts will likely remain measured.”

The applicable rates for the SDF and SLF in 2023 increased by 50 basis points to 11.50 and 19.50 per cent, respectively, following the hike in the policy rate by 50 basis points to 18.75 per cent in June 2023.

The interest rate at which these banks borrow from CBN changed in 2024 amid the Monetary Policy Committee (MPC) hike in MPR or interest rate.

In 2024, the MPC members voted to increase interest rate from 18.75 per cent to 27.50 per cent amid its mandate to tackle inflation rate and unstable Naira at the foreign exchange market. However, the MPC members of the CBN towards the end of September 2025 voted to reduce MPR  by 50 basis points to 27per cent, marking a significant shift to an expansionary monetary policy.

This move, which comes amid five consecutive months of sustained disinflation, aims to boost economic activity and address liquidity issues in the banking system.The decision was influenced by the fall in the inflation rate from 24.8per cent in January 2025 to 18.02per cent in September 2025.

The increase in SDF is coming on the backdrop of CBN removal of the cap on the remunerable 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.

CBN had maintained that the strong patronage at the SDF confirmed 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 yield on Treasury bills (T-Bills) as banks and merchant banks are looking for risk-free investments, which SDF has provided since MPR hike.

On the impact on fixed income, Cordros Research added that, “With the MPC maintaining the MPR, the fixed income market enters the rest of the year with a stable policy anchor that should support a continued, albeit marginal, yield decline.  Precisely, we expect a measured decline across the curve, driven largely by improved liquidity conditions and a slower inflation trajectory.

“Also, the MPC’s adjustment of the asymmetric corridor to +50basis points and −450basis points from +250basis points and −250 basis points is likely to support improved demand from the banks.

“Precisely, the lower SDF bound is likely to reduce the incentive for banks to sterilise liquidity at the window, although elevated usage through the year suggests this effect may be gradual. Nonetheless, the lower bound could result in improved demand for treasury issuances, supporting our view of a downward trend in yields.”