The latest data released by the CBN paints a clear picture of sustained high liquidity throughout the early days of November. On November 5, SDF placements stood at N4.424 trillion, but they escalated sharply to N4.816 trillion just two days later on November 7. This rapid increase underscores the banks' growing reluctance to deploy excess funds elsewhere. Broader system liquidity metrics also reflected this abundance, with overall deposits climbing steadily from N2.301 trillion on October 31 to N2.994 trillion by November 5. Such trends indicate that the banking system is awash with cash, yet this surplus is not circulating as one might expect in a healthy economy.
Market observers have noted a significant disparity in how this liquidity is distributed. A handful of large-tier banks are hoarding the bulk of the excess funds, creating a scenario where smaller institutions encounter selective funding challenges. This concentration has contributed to muted activity in the interbank market, where lending between banks remains subdued despite the overall glut. The uneven spread of liquidity means that while the system as a whole appears flush, certain segments face pressures that could exacerbate vulnerabilities if not addressed.
Contributing factors to this liquidity boost include recent government debt management activities. On Thursday, November 6, the Debt Management Office (DMO) successfully raised N546.24 billion through new issuances. However, it simultaneously repaid N662.76 billion in maturing securities, resulting in a net inflow of approximately N116.52 billion into the banking system. This injection played a role in elevating banks' opening balances, which rose from N141.11 billion on November 5 to N247.17 billion by November 7. These operations provided a timely cushion, further amplifying the already high levels of available funds.
In contrast to the heavy utilization of the SDF, recourse to the CBN's Standing Lending Facility (SLF)—an emergency overnight borrowing window—remained negligible at a mere N2.85 billion. This minimal borrowing activity reinforces the narrative of widespread excess liquidity, as few banks needed to tap into short-term funding from the apex bank. The preference for depositing over borrowing highlights a defensive posture adopted by financial institutions amid ongoing challenges.
Several underlying issues are driving this behavior. Persistent volatility in the foreign exchange market continues to erode confidence, making banks wary of currency-related risks. Additionally, constraints on acceptable collateral and lingering settlement inefficiencies in the financial system are deterring lending. Banks are essentially prioritizing capital preservation over expansion, opting for the certainty of CBN returns in a landscape marked by unpredictability.
A money market dealer encapsulated the sentiment succinctly: "The numbers show that banks are liquid, but they’re not lending. They would rather earn risk-free returns from the CBN than take exposure in an unpredictable environment." This quote captures the essence of the current dynamic, where safety trumps opportunity.
Economists and financial experts are raising alarms about the broader implications of this trend. The accumulation of excess reserves at the CBN risks undermining the effectiveness of monetary policy transmission. In theory, abundant liquidity should facilitate increased credit creation and stimulate economic activity. However, when funds remain parked idly, they fail to spur growth in lending to businesses or households, nor do they invigorate interbank transactions. This disconnect could lead to a scenario where policy rate adjustments by the CBN have limited impact on the real economy.
On a positive note, the current liquidity position affords the CBN considerable leeway to manage and sterilize surplus cash through tools like the SDF. By absorbing excess funds, the central bank can prevent inflationary pressures that might arise from unchecked money supply growth. Nevertheless, analysts emphasize that temporary measures are insufficient for long-term stability. True resolution demands structural reforms to enhance risk-sharing mechanisms among banks and improve the equitable distribution of liquidity. Initiatives could include better collateral frameworks, streamlined settlement processes, and incentives to encourage lending to productive sectors.
Looking ahead, money-market interest rates are projected to stay subdued in the short term, reflecting the prevailing oversupply of funds. Soft rates could benefit borrowers if lending picks up, but the persistent caution among banks suggests otherwise. That said, potential disruptions loom on the horizon. Uneven access to liquidity might spark brief episodes of volatility, particularly if significant fiscal outflows occur—such as government spending withdrawals—or if the CBN intervenes aggressively in the foreign exchange market to stabilize the naira.
This liquidity paradox in Nigeria's banking sector is symptomatic of deeper economic anxieties. While the record SDF deposits signal financial resilience in the face of adversity, they also reveal a hesitation to engage with the broader economy. The CBN's role in mopping up excess cash provides a buffer, but without addressing root causes like FX instability and operational hurdles, the cycle of risk aversion may persist. Policymakers, regulators, and bank executives must collaborate on reforms to unlock this trapped capital, ensuring that liquidity translates into tangible growth rather than remaining a sterile pool at the central bank.
In summary, as of November 7, 2025, Nigeria's DMBs have lodged an all-time high of N4.816 trillion in the SDF, driven by a preference for risk-free yields amid systemic uncertainties. Liquidity has grown robustly, bolstered by net DMO injections and minimal SLF usage, yet concentration among big banks and lending reluctance pose challenges. Experts call for structural changes to revitalize credit flows and monetary policy efficacy, warning that without them, soft rates and occasional volatility will define the near-term outlook. This episode underscores the delicate balance between prudence and progress in Nigeria's evolving financial landscape.
