Banks’ cash deposits with CBN fall 41.6% in 1 week, borrowing hits N820bn

By Chinwendu Obienyi

Nigeria’s banking system witnessed a sharp reversal in liquidity dynamics last week, as commercial banks cut back excess cash placements with the Central Bank of Nigeria (CBN) by 41.6 per cent, even as borrowing through the regulator’s lending window surged more than fourfold.

In a weekly update by Coronation Merchant Bank seen by Daily Sun on Monday, banks’ deposits at the CBN’s Standing Deposit Facility (SDF) dropped to N539.12 billion, down from N923.68 billion by August 18, 2025. Conversely, utilisation of the Standing Lending Facility (SLF) climbed steeply, rising from N179.08 billion to N821.50 billion by August 22, 2025.

This represents an increase of 358 per cent and reflects mounting cash pressures across the financial system, driven by aggressive liquidity mop-up operations by the CBN.

A significant driver of the tightening was the Open Market Operation (OMO) auction conducted midweek, which absorbed substantial liquidity from the banking sector. Specifically, at the OMO auction held on August 21, the Central Bank of Nigeria (CBN) offered N600.00 billion across 89-day and 124-day tenors.

Daily Sun investigations can reveal that demand was overwhelmingly skewed toward the 124-day paper, which attracted N1.01 trillion in subscriptions against a N300.00 billion offer, resulting in a bid-to-offer ratio of 3.38x. In response, the CBN allotted N894.94 billion at a stop rate of 25.99 per cent, nearly tripling its original offer.

In contrast, the 89-day bill was severely undersubscribed, with just N2.25 billion in demand versus the N300.00 billion on offer — a bid-to-offer ratio of only 0.01x. The central bank allotted the full N2.25 billion at a stop rate of 25.50 per cent.

The divergent performance between the two tenors highlights investor preference for medium-dated, higher-yielding instruments, especially in a tightening liquidity environment where short-term cash constraints are rising but medium-term return expectations remain elevated.

Thus the auction, aimed at managing inflation and exchange rate stability, drained cash from the system and left banks scrambling for short-term funding.

Despite the late-week squeeze, average system liquidity for the week still improved to N366.94 billion, up from N62.94 billion the previous week. However, analysts say this masks the volatility experienced within the week and the growing reliance on central bank funding.

The movement in the SDF and SLF figures underscores the short-term stress within the money market, even as authorities pursue tighter monetary conditions to tame inflation and support the naira amid ongoing foreign exchange reforms.

A Senior Economist at Nova Capital Markets, who did not want his name in print, said, “Liquidity management remains a critical lever for the central bank. By mopping up excess liquidity through OMO bills, the CBN hopes to limit inflationary pressures and reduce demand-side FX pressures.”

The shift in banking system liquidity may also impact short-term interbank rates and credit availability in the coming weeks, particularly if further OMO auctions are deployed or if fiscal injections are delayed”.