Nigerian banks reduced their deposits with the Central Bank of Nigeria (CBN) by 1.14 per cent month-on-month to N82.99 trillion in August 2026, down from N83.96 trillion recorded in July, according to the latest data from the apex bank.
Banks typically place excess funds with the CBN through the Standing Deposit Facility (SDF), which allows them to earn interest on overnight deposits while keeping surplus liquidity in relatively low-risk instruments.
The N82.99 trillion recorded in August was the third-lowest monthly SDF placement by banks so far this year, reflecting changes in liquidity conditions and the way banks allocated available funds.
The decline also came after the CBN reduced its Monetary Policy Rate (MPR) to 26.50 per cent in February 2026 from 27 per cent in 2025. Meanwhile, the Monetary Policy Committee (MPC) has maintained the Standing Facilities Corridor at +50/-450 basis points around the benchmark rate throughout 2026.
Banks’ SDF placements fluctuate in 2026
CBN figures showed that banks deposited N89.3 trillion through the SDF in June, compared with N87.13 trillion in May and N92.32 trillion in April.
SDF placements climbed to their highest level of the year in March, reaching N128.92 trillion. The figure stood at N61.11 trillion in February, up 16.18 per cent from the N52.6 trillion recorded in January.
Taken together, banks placed an estimated N678.36 trillion with the CBN during the first eight months of 2026. This represents an increase of about 610.58 per cent compared with the N95.47 trillion recorded during the same period in 2025.
The sharp increase follows a similar trend recorded last year. THISDAY reported that banks deposited an estimated N336.2 trillion with the CBN in 2025, representing a 777.2 per cent year-on-year increase from N38.33 trillion in 2024.
Lower SDF rates may influence banks’ decisions
Analysts at Cordros Research, in a report following the November 24-25 MPC meeting, said the adjustment to the asymmetric corridor had resulted in lower rates for both the Standing Lending Facility (SLF) and SDF.
The corridor was adjusted to +50/-450 basis points from the previous +250/-250 basis points arrangement.
The move brought the SLF rate down to 27.5 per cent from 29.5 per cent, while the SDF rate declined to 22.5 per cent from 24.5 per cent, according to the analysts.
Cordros Research said the change was expected to ease monetary conditions and support an increase in private-sector credit by banks.
Why banks continue to park funds with the CBN
Vice-President of Highcap Securities, David Adnori, said a reduction in SDF placements should not automatically be interpreted as a sign that banks have become less liquid.
According to him, banks may simply be reallocating excess funds into other assets.
“A drop in CBN deposits does not necessarily mean banks become less liquid. It can mean that excess liquidity was being converted into loans or securities or was absorbed by the CBN,” Adnori said.
Chief Research Officer at Investdata Consulting Limited, Ambrose Omordion, said concerns about non-performing loans (NPLs) remained one of the factors making banks cautious about extending credit.
He explained that difficulties faced by some borrowers in servicing existing loans had encouraged banks to favour investment options perceived to carry lower risks.
“The interest rate in the financial sector is high, and lending to customers becomes a major challenge. This alone has contributed to banks depositing with the CBN and investing in fixed-income instruments, where the risk is relatively low, and returns are assured,” Omordion said.
He added that further reductions in interest rates by the CBN could encourage banks to increase lending to businesses and reduce the amount of surplus funds placed with the apex bank.
“If we see further rate cuts by the CBN, that alone may encourage banks to lend more to the real sector and reduce the volume of excess liquidity deposited with the CBN,” he said.
Omordion also said the banking sector recapitalisation exercise could provide additional support for the real sector, while contributing to the government’s ambition of building a $1 trillion economy.
High rates and economic uncertainty weigh on lending
Investment banker and stockbroker Tajudeen Olayinka said high interest rates, credit risks and wider economic uncertainties had made placements with the CBN attractive to banks seeking relatively secure returns.
“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,” he said.
Olayinka said the substantial increase in SDF placements over the period highlighted the gap between the amount of liquidity available within the banking system and banks’ willingness to increase lending.
“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,” he said.
He noted that banks were responding to market conditions shaped by factors including elevated inflation, exchange-rate volatility and weak consumer confidence.
“Banks are not acting irrationally. They are responding to signals from an environment marked by high inflation, exchange-rate volatility and weak consumer confidence,” Olayinka added.
According to him, the prevailing monetary environment continues to make CBN placements appealing because they provide banks with relatively low-risk returns.
“Faced with this reality, banks prefer to earn relatively risk-free returns by placing funds with the CBN rather than extending credit to businesses struggling under heavy input costs and uncertain demand,” Olayinka said.
