By Elizabeth Adegbesan 

Banks have increased their deposit with the Central Bank of Nigeria, CBN, by 907.3 percent  Year-on-Year, YoY,  to N68.9 trillion in the first half of the year (H1’25) from N6.84 trillion in the corresponding period of 2024 (H1’24), reflecting excess liquidity in the banking system.

CBN accepts deposits from banks through its Standing Deposit Facility (SDF) and pays an interest rate of MPR minus 100 bpts.

On the other hand, the apex bank has two short term lending windows for banks namely the Standing Lending Facility (SLF) and Repo lending.

It lends money to banks through the SLF at interest rate of 500 basis points (bpts) above the Monetary Policy Rate (MPR), and it also lends money to banks through Repurchase (Repo) arrangement, which involves the purchase of banks’ securities with the agreement to sell back at a specific date and usually for a higher price.

Breakdown of the deposits showed that banks deposited N19.22 trillion in the first quarter of 2025, Q1’25, representing 956 per cent, YoY from N1.82 trillion in Q1’24.

Banks’ deposits in the SDF stood at N49.68 trillion in Q2’25 up by 889.6 per cent, YoY from N5.02 trillion in Q2’24.

The strong patronage of the SDF reflects excess liquidity in the banking system and the effect of the CBN’s shift to a single-tier remuneration structure for the SDF last year.

The policy stipulated that all SDF deposits are remunerated at the Monetary Policy Rate (MPR) minus 100 basis points and with the current MPR at 27.5 per cent, this resulted in an SDF rate of 26.5 per cent.

On the other hand, banks’ borrowing through the SLF rose by 3.04 per cent YoY to N59.84 trillion in H1’25 from N58.07 trillion in H1’24.

In Q1’25,  banks’ borrowing through the SLF rose by 61 per cent, YoY to N50.46 trillion from N31.25 trillion   in Q1′ 24.

In Q2’25 banks borrowed N9.38 trillion, representing a 65 per cent decline YoY from N26.82 trillion in H1’24.

The apex bank conducted a liquidity mop up through regular sale of Open Market Operations, OMO treasury bills (TBs) during the period.

Vanguard’s findings from the apex bank showed that the CBN sold N8.05 trillion worth of Open Market Operation (OMO) Treasury Bills (TBs) in H1’25, up 27.3 percent from N6.32 trillion in H1’24.

However, cost of funds in the interbank money market recorded a decline, with the average interest rate on Collateralized (Open Buy Back, OBB) lending at 27 per cent at the end of June 2025, down from 29 percent at the end of June 2024.