Liquidity: Banks borrow N1.2tr from CBN in one day.

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Nigerian Deposit Money Banks (DMBs) have withdrawn a record N1.2 trillion from the Central Bank’s (CBN) Standing Lending Facility (SLF) to address a severe liquidity shortage in the money market, according to TrustBanc Financial Group Limited.¹ This massive withdrawal is the largest single-day withdrawal since the start of the year.

The banking system is grappling with a significant liquidity deficit, which stood at N266.55 billion on Thursday, a stark contrast to the N201 billion excess funds reported midweek. The financial system’s liquidity has been depleted due to substantial outflows from Central Bank of Nigeria auctions and an undisclosed FX swap settlement.

Analysts have described this development as a normal market fluctuation, stating that “it is normal market development for liquidity to swing left or right as banks’ appetite for government securities and subsequent debits for investment placed often drain liquidity balance in the financial market with immediate impacts on rate pricing.”

The liquidity squeeze has pushed interbank funding rates (OPR & O/N) up by over 340 bps to close at 31.50% and 32.00%, respectively. As a result, analysts at TrustBanc expect funding rates to remain near prevailing levels.

This is not the first time banks have turned to the CBN for support. Earlier this year, the CBN reported that commercial and merchant banks borrowed N8.2 trillion from the apex bank in the first 17 days of January 2025 due to liquidity challenges in the financial sector. Within the same period, banks and merchant banks’ deposits in CBN stood at N6.69 trillion, amid efforts to lend to the real sector of the economy.

Commercial banks and merchant banks access lending from the CBN using the Standing Lending Facility (SLF) window. They also deposit excess liquidity with the apex bank using the Standing Deposit Facility window (SDF).

The CBN provides the SLF, a short-term lending window for banks and merchant banks to access liquidity to run their day-to-day business operations. This facility is designed to provide temporary liquidity support to banks and merchant banks, enabling them to meet their short-term funding needs.

According to analysts, the recent withdrawal of N1.2 trillion from the SLF window highlights the ongoing liquidity challenges in the financial sector. They noted that the CBN’s efforts to manage liquidity and maintain financial stability are crucial in supporting the economy.

As the financial sector continues to navigate the challenges of liquidity management, the CBN’s role in providing temporary liquidity support remains critical. The apex bank’s ability to respond to the liquidity needs of banks and merchant banks will be closely watched in the coming days.

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