In a significant move, Nigerian banks have sharply reduced the cash they park overnight with the Central Bank of Nigeria (CBN), withdrawing ₦941.85 billion from the apex bank's Standing Deposit Facility (SDF). This development signals a major shift in liquidity deployment across the financial system. The SDF is a CBN facility through which commercial banks place surplus cash with the central bank, usually overnight, and earn interest on those deposits.
According to CBN data, banks' SDF placements fell to ₦3.76 trillion on October 7, from ₦4.70 trillion a day earlier. This reduction was the largest single-day decline since September 30, when placements fell by ₦1.73 trillion. The latest movement comes less than three weeks after the Monetary Policy Committee cut the Monetary Policy Rate (MPR) by 350 basis points to 23 per cent, its first major easing move after a prolonged period of tight monetary conditions.
The CBN retained the Cash Reserve Ratio at 45 per cent for commercial banks and 16 per cent for merchant banks. The scale of the SDF withdrawal is significant because it shows that billions of naira previously held overnight with the apex bank are no longer being left idle through the facility. Banks' SDF balances had climbed to ₦7.52 trillion on September 24 before declining to ₦5.90 trillion on September 25.
The shift is occurring alongside aggressive liquidity management by the CBN through open market operations. On October 6, the apex bank withdrew about ₦3.31 trillion through an OMO auction, while ₦2.17 trillion of maturing OMO bills returned funds to the banking system, resulting in a net liquidity withdrawal of about ₦1.14 trillion. Investors submitted ₦3.51 trillion in bids against ₦2 trillion offered.
Taken together, the developments suggest that banks are actively repositioning their liquidity portfolios as the CBN attempts to control excess cash while lowering the benchmark cost of money. The decline in SDF placements could mean that banks are redirecting part of their excess funds towards alternative instruments, interbank transactions, securities or credit.
The CBN's rate cut was intended to improve monetary policy transmission and create conditions for lower financing costs. However, with commercial banks still required to maintain a 45 per cent CRR, the extent to which increased liquidity translates into cheaper credit for businesses and households will depend heavily on banks' asset-allocation decisions.
Meanwhile, the Nigerian Overnight Financing Rate was at 20 per cent in early October, indicating that short-term funding conditions remained materially below the new 23 per cent MPR. The immediate test for monetary policy is whether the combination of lower policy rates and changing bank liquidity behaviour will eventually translate into stronger private-sector credit, lower borrowing costs and increased financing for productive sectors.
Key points
- Banks withdraw ₦941.85 billion from CBN's Standing Deposit Facility.
- The move signals a major shift in liquidity deployment across the financial system.
- The CBN's rate cut was intended to improve monetary policy transmission and create conditions for lower financing costs.
