Nigerian Banks Flood CBN with N3.7 Trillion Excess Cash
Nigerian commercial banks ended the pre-Christmas period with an unusually large liquidity overhang, depositing an estimated N3.7 trillion with the Central Bank of Nigeria (CBN) through its Standing Deposit Facility (SDF) on December 24.
This represents one of the highest single-day SDF placements in recent months and underscores the scale of excess cash in the banking system. Financial data from the CBN covering December 22 to 24, 2025, show a sharp and rapid build-up of idle funds in the days leading up to Christmas.
The surge came despite the CBN’s attempt to absorb liquidity earlier in the week through a N1.7 trillion Open Market Operation (OMO) auction on December 22.
Ordinarily, such a sizable OMO should significantly tighten system liquidity. Instead, the data suggest that banks were still left with substantial surplus funds, which they chose to park overnight with the apex bank rather than deploy elsewhere.
From a market perspective, this development highlights several underlying dynamics. First, it reflects weak short-term demand for credit and limited risk appetite among banks during the holiday period.
With corporate activity slowing ahead of Christmas and many borrowers delaying transactions until the new year, banks often prefer the safety of placing funds with the CBN, even at relatively modest SDF rates, rather than taking on additional credit or market risk.
Second, the large SDF placement points to structural liquidity inflows that continue to outpace the CBN’s tightening efforts.
These inflows may be linked to prior government spending, maturing securities, or other system-wide cash injections that were not fully neutralised by the OMO auction. The result is a banking system awash with cash, particularly in the absence of sufficient investment outlets.
The immediate impact of this excess liquidity is downward pressure on short-term money market rates. When banks have more cash than they need, interbank lending rates and other overnight rates tend to soften, as institutions compete to place funds.
This can dilute the effectiveness of monetary tightening and complicate the CBN’s efforts to keep financial conditions sufficiently restrictive to manage inflation.
Looking ahead, if elevated SDF balances persist into the new year, the CBN may be compelled to intensify liquidity management through larger or more frequent OMO auctions, higher cash reserve requirements, or adjustments to SDF and lending facility rates.
For banks, sustained excess liquidity could weigh on profitability, as parking funds at the SDF typically yields lower returns than lending or investing in higher-yielding instruments.
All in all, the N3.7 trillion deposited with the CBN on Christmas Eve is not just a seasonal anomaly but a clear signal of deep liquidity in the Nigerian banking system.
How effectively the CBN responds and how quickly credit demand recovers will be critical in determining the trajectory of money market rates, bank earnings, and overall monetary conditions in the months ahead. First Holdco Delivers 62% YTD Return, Downgrades to Sell
