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Nigerian banks have been moving trillions of naira in and out of the Central Bank of Nigeria’s overnight vault, and the latest numbers are reopening an uncomfortable question for ordinary borrowers and businesses: where is all this cash going, and why was so much of it sitting idle at the apex bank in the first place?
Fresh data from the Central Bank of Nigeria (CBN) show that banks sharply reduced their placements at the Standing Deposit Facility (SDF) on Wednesday, cutting N941.85 billion in a single day. Their balances at the facility fell from N4.70 trillion on October 6 to N3.76 trillion on October 7. That was the largest one-day drop since September 30.
To see why that matters, you have to look at how high the balance climbed just two weeks earlier.
The SDF is an overnight facility where banks park excess cash with the CBN without putting up collateral. It is essentially a safe place to leave surplus money for a day at a time.
According to the figures reported by Daily Trust, placements peaked at N7.52 trillion on September 24, after standing at N7.34 trillion the day before. They then slid to N5.90 trillion on September 25, edged up to N6.01 trillion on September 28, and rose to N6.28 trillion on September 29. A day later, on September 30, they fell to N4.55 trillion. They climbed again to N4.86 trillion on October 5, eased to N4.70 trillion on October 6, and dropped below the N4 trillion mark on October 7.
Put simply, the balance has roughly halved from the September peak. Leadership newspaper calculated that banks pulled about N3.76 trillion out of the facility within 13 days, and said it appeared to be a search for better returns after the central bank cut interest rates.
The turning point was the Monetary Policy Committee meeting on September 22. The committee reduced the Monetary Policy Rate by 350 basis points to 23 per cent. It also left the main reserve requirements untouched. The Cash Reserve Ratio stays at 45 per cent for commercial banks and 16 per cent for merchant banks, and the 75 per cent CRR on non-TSA public sector deposits was also retained.
A lower policy rate narrows the gap between what banks earn by leaving money at the CBN and what they can earn elsewhere. That gives lenders a reason to look for higher yields. The data suggest the money did not leave the facility the moment the rate was cut. The CBN repaid N2.27 trillion in maturing Open Market Operations (OMO) bills on September 22, the same day the committee met. With that cash back in their accounts and yields now lower, banks appear to have parked it at the SDF while they decided where to put it.
At the same time, the apex bank has been mopping up liquidity aggressively through OMO auctions. On Tuesday, October 6, the CBN took in N3.31 trillion from the banking system, while about N2.17 trillion in maturing OMO bills flowed back. The net effect was a liquidity withdrawal of about N1.14 trillion.
Investor appetite was strong. Bids at that auction came to N3.511 trillion against the N2 trillion the CBN initially offered. The central bank ended up allotting N3.309 trillion. The 182-day bill took N2.671 trillion of that, about 80.7 per cent of the total, and cleared at 16.92 per cent. It matures on April 6, 2027. The 147-day bill drew N817.95 billion in bids against N1 trillion offered, and the CBN allotted N637.20 billion at 17.22 per cent.
Those stop rates were slightly lower than at the September 29 auction, when the 147-day and 182-day bills cleared at 17.24 per cent and 16.94 per cent. The heavy demand for the longer bill shows that investors are willing to lock money away for months even at a slightly lower yield.
The scale for September as a whole is striking. The CBN sold roughly N17.51 trillion worth of OMO bills during the month, while N10.89 trillion matured, leaving a net withdrawal of about N6.62 trillion.
Cordros Securities noted that the overnight lending rate rose by 25 basis points to 22.2 per cent on Tuesday, even with the maturity inflows. In other words, cash is still tight enough at the margin that banks are charging each other more to borrow overnight.
The numbers show that banks have large sums of surplus liquidity, that they have been placing a lot of it with the CBN, and that they have recently been shifting some of it elsewhere. They do not show whether that money is going into loans to businesses and households, into government securities, into the OMO bills the CBN itself is selling, or into something else.
That gap matters, because the answer shapes how ordinary Nigerians feel about the banking sector. A manufacturer asking for a loan, a trader looking for working capital or a young entrepreneur trying to expand may well ask why banks can place trillions at the central bank when credit is hard to get and expensive. Critics of the sector have long argued that lenders prefer low-risk instruments to private-sector lending. Banks, for their part, usually respond that lending risk is real, that defaults are costly and that regulators require them to hold large buffers.
The reserve rules are central to that debate. With the Cash Reserve Ratio at 45 per cent for commercial banks, a huge share of customer deposits stays locked at the CBN no matter what happens at the SDF. Leadership made the same point, noting that a large share of bank deposits stays with the central bank whatever happens to the facility. So when people talk about banks “sitting on cash,” part of the answer is that the regulator is requiring them to.
The honest reading, then, is that two things can be true at once. Banks are under heavy regulatory constraints that limit how much they can lend. And, when they have extra cash beyond those requirements, they have clearly been choosing to park large amounts in the safest place available. Whether that is prudence or a missed opportunity for the real economy is the argument that this data will fuel.
For people who invest in treasury bills, bonds and bank stocks, the picture is mixed. Falling OMO stop rates mean the returns on these bills are coming down slightly. If banks are moving money out of the SDF, it could push more demand toward other instruments and lift prices, or it could eventually flow into lending, which would be good for businesses and for economic activity.
Strong bids at the OMO auction also show that big investors still see these instruments as attractive. A subscription of more than three trillion naira against an offer of two trillion tells you there is no shortage of money looking for a safe home at a double-digit yield. That is a sign of how much liquidity there still is in the system, even as the CBN tries to drain it.
The central bank’s liquidity operations are usually aimed at keeping excess naira from fuelling inflation and pressure on the exchange rate. By selling OMO bills, it pulls money out of circulation and gives banks an interest-bearing alternative to spending it. Cutting the policy rate while draining liquidity at the same time sends a deliberately balanced message: the CBN is easing, but cautiously.
That balance is difficult to read from the outside. If the CBN were genuinely trying to push banks toward more lending, it could lower reserve requirements or reduce the attractiveness of its own bills. Instead, it has left the CRR unchanged and kept selling large volumes of OMO bills. Some analysts will read that as a sign the central bank is more worried about inflation and currency stability than about stimulating credit. The CBN has not framed it that way in the data cited here, so that remains an interpretation and not an established fact.
Three things will tell us whether this is a passing adjustment or the start of a bigger shift. The first is the trend in SDF balances over the coming weeks. If they keep falling, it suggests banks are finding other uses for their money. If they rebound, the cash may simply be moving around at the end of auction cycles.
The second is private-sector credit data. If banks are deploying more of their liquidity into loans, it should start to appear in the numbers from the CBN and the National Bureau of Statistics. If lending stays flat while SDF balances fall, the money is more likely going into securities.
The third is the next OMO auction. If stop rates keep drifting lower and bids stay heavy, it will confirm that investors and banks are still comfortable parking money in short-term government paper, even as yields soften.
For now, the facts are clear. Banks had as much as N7.52 trillion at the CBN’s overnight facility last month, they have cut that to N3.76 trillion, the central bank is still draining cash with record-sized bill sales, and the policy rate has just been lowered to 23 per cent. What happens to that money next will say a lot about whether lower rates reach ordinary Nigerians or stay inside the financial system.
This is a developing story, and this report will be updated as new CBN data and bank reactions emerge.
