Nigeria’s banking sector is grappling with an unprecedented liquidity glut, as new figures reveal that commercial banks parked a staggering N146.13 trillion with the Central Bank of Nigeria (CBN) in the first nine months of 2025, marking a remarkable 568.7 percent year-on-year increase from N21.85 trillion recorded in the same period last year.
The explosive growth in deposits underscores a troubling paradox in Africa’s largest economy: while businesses and consumers struggle to access affordable credit, the banking system is sitting on mountains of idle cash with seemingly nowhere productive to deploy it.
The Mechanics of Central Bank Operations
To understand the magnitude of this development, it’s essential to grasp how the CBN manages liquidity in the banking system. The apex bank operates a dual-window system for managing short-term funds.
When banks need quick cash, they can tap two lending facilities: the Standing Lending Facility (SLF), where they borrow at 500 basis points above the Monetary Policy Rate, or the Repurchase (Repo) arrangement, where they temporarily sell securities to the CBN with an agreement to repurchase them at a predetermined date and price.
Conversely, when banks have excess funds, they can place deposits with the CBN through the Standing Deposit Facility (SDF), earning interest at 100 basis points below the MPR – a significantly lower rate than what they charge borrowers, but apparently still attractive enough to justify keeping vast sums locked away.
A Dramatic Quarterly Acceleration
The quarterly trend reveals just how rapidly this accumulation of liquidity has accelerated. Banks’ deposits through the SDF jumped 158.4 percent quarter-on-quarter to N49.68 trillion in Q2 2025, up from N19.22 trillion in the first quarter. The momentum continued unabated into Q3, with deposits climbing another 55.4 percent to N77.23 trillion.
Industry analysts attribute this surge to two primary factors: genuine excess liquidity in the system and the lingering effects of the CBN’s policy shift to a single-tier remuneration structure for the SDF implemented last year, which apparently made parking funds with the central bank more attractive relative to other options.
The Other Side of the Ledger
Interestingly, while banks are depositing more with the CBN, they’re borrowing significantly less. Bank borrowings through the SLF fell 12.4 percent year-on-year to N69.37 trillion in the first nine months of 2025, down from N87.09 trillion in the corresponding period of 2024.
This decline signals that banks have become less dependent on the apex bank for short-term liquidity needs – hardly surprising given the massive cash reserves they’re holding. However, quarterly data shows some volatility, with SLF borrowings spiking 61 percent to N50.46 trillion in Q2 2025 before moderating to N10.67 trillion in Q3 – still representing a 78.8 percent quarterly increase.
Implications for the Economy
For economists and policymakers, these figures raise critical questions about credit creation and economic growth. When banks prefer the safety and ease of depositing funds with the CBN rather than extending loans to businesses and households, it suggests deep-seated concerns about credit risk, economic uncertainty, or inadequate lending opportunities.
This liquidity trap could have far-reaching consequences for Nigeria’s economic recovery, as idle bank deposits do little to stimulate investment, create jobs, or drive the productive sectors of the economy that desperately need capital injection.
As the CBN navigates its monetary policy path in an environment of persistent inflation and currency pressures, finding ways to channel this enormous pool of banking sector liquidity toward productive economic activity may prove one of its most pressing challenges in the months ahead.
WHAT YOU SHOULD KNOW
Nigerian banks deposited N146.13 trillion with the Central Bank in the first nine months of 2025—a staggering 569% increase from the previous year—revealing a dangerous paradox: while the banking system is drowning in excess cash, this money remains idle rather than flowing to businesses and consumers as loans.
This liquidity hoarding signals that banks view lending to the real economy as too risky, effectively starving critical sectors of capital needed for growth and job creation.
The result is a financial system sitting on mountains of unproductive cash while the economy struggles—a troubling indicator of deep structural concerns about Nigeria’s economic stability and investment climate.
