Kayode Tokede
Amidst uncertainty in the business environment, banks borrowing from Central Bank of Nigeria (CBN) dropped by 96.04 per cent Year-on-Year (YoY) to N2.33trillion in half year (H1) of 2026 from N58.91 trillion in the corresponding period of 2025.
Nigerian banks borrow from the CBN through Standing Lending Facility (SLF) window in a move to meet critical overnight obligations.
CBN data showed that banks use of SLF declined in 2026 half year compared to 2025, reflecting stronger liquidity and reduced reliance on the apex bank.
Also, the data showed that banks took caution after the CBN withdrew regulatory forbearance letting them be more selective about extending credit to critical sectors.
The Monetary Policy Committee (MPC) of the central bank in its May 2026 meeting retained the Monetary Policy Rate (MPR) at 26.50 per cent and the Standing Facilities corridor around the MPR at +50/-450 basis points.
This means that when Nigerian banks need overnight liquidity from the CBN, they typically borrow at 22.5 per cent per annum through the SLF.
CBN data revealed that N1.09 trillion in January 2026 and N1.66 billion in March 2026 emerged as the highest and lowest amount banks borrowed from the apex bank this year.
On the contrary, the CBN data, revealed that banks deposited an estimated N511 trillion in H1, as against N68.94 trillion in H1 2025.
Banks deposit excess cash with CBN using the Standing Deposit Facility (SDF) window and it comes with attractive interest overnight, making it a preferred option for banks to earn risk-free returns.
Analysis of CBN’s data showed thaat banks’ deposit in March 2026 was the highest with about N128.92 trillion. In February 2026, it stood at N61.11 trillion,16.18 per cent increase when compared to N52.6 trillion deposited in January 2026. The total deposit, however, closed June 2026 at N89.33 trillion, about 479.4 per cent YoY increase over N15.4 trillion in June 2025.
With SDF remuneration rate at -50 basis points, the eligible overnight excess liquidity deposit with the CBN through the SDF earns 27.50 per cent per annum on those deposits.
The decision by banks to reduce deposits with the CBN can be attributed to the recent cut in the Monetary Policy Rate (MPR) to 26.50 per cent in February 2026 from 27 per cent 2025.
It can also be attributed to lower opportunity cost of holding cash with the CBN compared to lending it out in the market.
The MPC of the CBN in February 2026 retained the Standing Facilities Corridor around the MPR at +50/-450 basis points.
Analysts at Cordros Research in a report stated that by adjusting the asymmetric corridor to +50/-450basis points around the MPR indicates a reduction in interest rates for the SLF and the SDF to 27.5per cent (Previous: 29.5 per cent) and 22.5per cent (Previous: 24.5per cent), respectively.
“The adjustment is expected to ease monetary conditions and strengthen banks’ private sector credit expansion,” they explained.
Analysts have expressed that attractive 27.5 per cent return is one major reason Nigerian banks deposited very large sums with the CBN this year instead of extending more loans to private sector
The Vice President, Highcap Securities, Mr. David Adnori said when there is so much uncertainty in the business environment, banks look for viable opportunities in prime borrowers around the country, and therefore, would prefer lending to CBN who is less likely to default 100 per cent in their obligations to lenders, including to their suppliers.
He explained further that, “Where the prime borrowers are not largely available in good numbers, banks reprice risks to accommodate non prime borrowers that are still in good shape to accommodate shocks and high lending rates.”
Adnori noted further that, “In the absence of these viable opportunities, banks resort to short-term interbank placements and CBN’s standing deposit window to temporarily hold their cash. Clearly, what happened in March 2026 was a case of banks taking advantage of a better interest rate that is available in CBN’s standing deposit window to preserve their excess liquidity.
“CBN itself is aware of this development, hence it decided to sustain the floor in the MPR corridor to -450 basis points around MPR, to derisk the interest rate environment, while encouraging deposit money banks to willingly place excess liquidity in CBN, as against reckless lending.”
He said, “The February 2026 decision of MPC set MPR at 26.5per cent, with the retention of its corridor at +50 basis points and -450 basis points around MPR. So, the major factor is the uncertainty in the environment of business, arising from the global energy crisis as a result of US. and Israel war on Iran.
“The implications are very clear: Banks will be better accommodated in CBN’s standing deposit window to remove an obvious threat to the current high yield environment that remains the reason for high inflow from foreign portfolio investors, ensuring a better exchange rate management. Non performing loans in banks are better managed. Only viable and bankable opportunities are better pursued by banks.
“Businesses in dire need of long-term capital will prepare themselves to access more stable funding opportunities in the capital market. Greater access to the debt capital market. High interest rate will persist in the economy.
“The desire to see inflation at single digit by all economic agents and government in Nigeria could be further delayed. Economic growth could be challenged, as households and firms struggle to manage the likely resurgence in higher cost of living.”
