Abuja, Nigeria – Banks’ borrowing from the Central Bank of Nigeria (CBN) surged by 171% month-on-month (MoM) to N24.81 trillion in February 2025, up from N9.15 trillion in January. The sharp increase reflects growing liquidity constraints in the interbank money market.
The CBN provides short-term lending to banks through the Standing Lending Facility (SLF) and Repurchase (Repo) lending. Under the SLF, banks borrow at an interest rate 500 basis points above the Monetary Policy Rate (MPR), while the Repo arrangement allows banks to sell securities to the CBN with an agreement to repurchase them later.
Conversely, banks’ deposits with the apex bank through the Standing Deposit Facility (SDF) fell by 50% MoM, dropping to N4.65 trillion in February 2025 from N9.31 trillion in January 2025. The SDF allows banks to deposit excess funds with the CBN at an interest rate 100 basis points below the MPR.
The rise in bank borrowing is attributed to the CBN’s tight monetary policy aimed at curbing inflation. Despite six consecutive rate hikes, the apex bank retained the Monetary Policy Rate (MPR) and other monetary policy corridors in its most recent Monetary Policy Committee (MPC) meeting.
Additionally, the CBN intensified its liquidity mop-up operations through regular sales of Open Market Operations (OMO) Treasury Bills (TBs). In February 2025, the apex bank sold N1.39 trillion worth of OMO TBs, marking a 39.5% increase from the N1 trillion sold in January.
The liquidity shortage also drove up the cost of funds in the interbank money market. The average interest rate on Collateralized (Open Buy Back, OBB) lending rose to 32.5% at the end of February 2025, up from 27.5% in January 2025.
The sharp rise in borrowing and declining deposits signal heightened liquidity pressure on banks as they continue to navigate the CBN’s aggressive monetary tightening measures.
