Nigerian banks’ deposits with the Central Bank of Nigeria (CBN) fell by 1.14 per cent to N82.99 trillion in August 2026, reflecting changing liquidity conditions and banks’ decisions on how to deploy excess funds amid elevated credit risks.
The latest CBN data showed that deposits through the Standing Deposit Facility (SDF) declined from N83.96 trillion in July to N82.99 trillion in August.
The SDF allows banks to place excess liquidity with the apex bank overnight in exchange for interest.
August’s figure was the third-lowest monthly SDF placement recorded by banks so far in 2026, following substantially higher placements earlier in the year.
Banks deposited N89.3 trillion through the facility in June, compared with N87.13 trillion in May and N92.32 trillion in April.
SDF placements reached a yearly high of N128.92 trillion in March before falling sharply to N61.11 trillion in February and subsequently rising in the following months.
The movement in deposits comes against the backdrop of changes in the CBN’s monetary policy stance. The Monetary Policy Rate was reduced to 26.50 per cent in February 2026 from 27 per cent in 2025, while the Monetary Policy Committee has maintained the Standing Facilities Corridor at +50/-450 basis points around the MPR.
Overall, banks deposited an estimated N678.36 trillion with the CBN during the first eight months of 2026, representing an increase of about 610.58 per cent compared with the N95.47 trillion recorded during the corresponding period of 2025.
The sharp year-on-year increase follows a broader rise in banks’ use of the facility. Banks deposited an estimated N336.2 trillion with the CBN in 2025, compared with N38.33 trillion in 2024.
Analysts said the decline in August should not automatically be interpreted as a deterioration in banks’ liquidity position.
Vice-President of Highcap Securities, David Adnori, said banks could be redirecting excess funds towards lending or securities rather than maintaining them with the CBN.
“A drop in CBN deposits does not necessarily mean banks become less liquid. It can mean that excess liquidity was being converted into loans or securities or was absorbed by the CBN,” Adnori said.
However, concerns over credit quality remain a factor influencing banks’ lending decisions.
Chief Research Officer at Investdata Consulting Limited, Ambrose Omordion, said banks had remained cautious about lending because of concerns over non-performing loans and customers’ ability to service existing facilities.
He said elevated interest rates had made lending more challenging while encouraging banks to favour fixed-income investments and other relatively lower-risk assets.
“The interest rate in the financial sector is high, and lending to customers becomes a major challenge. This alone has contributed to banks depositing with the CBN and investing in fixed-income instruments, where the risk is relatively low, and returns are assured,” Omordion said.
He added that further reductions in interest rates could encourage banks to increase lending to the real sector and reduce the amount of excess liquidity placed with the CBN.
“If we see further rate cuts by the CBN, that alone may encourage banks to lend more to the real sector and reduce the volume of excess liquidity deposited with the CBN,” he said.
Omordion also said the banking sector’s recapitalisation exercise could strengthen the flow of credit to the real economy and support the Federal Government’s ambition of building a $1 trillion economy.
Investment banker and stockbroker Tajudeen Olayinka similarly linked banks’ preference for the SDF to high interest rates, credit risks and wider economic uncertainty.
“With high benchmark rates for lending and borrowing, and concerns about credit risk and economic uncertainty, banks may prefer the relative safety of the SDF. It offers them a known return rather than extending credit into uncertain territory,” Olayinka said.
He described the substantial increase in SDF placements over the period as evidence of the tension between high liquidity in the banking system and banks’ caution towards expanding credit.
“It captures a deeper tension between liquidity abundance and lending reluctance in the financial system. Beneath the numbers lies a complex web of caution, policy tightening and an economy grappling with uncertainty.
“Banks are not acting irrationally. They are responding to signals from an environment marked by high inflation, exchange-rate volatility and weak consumer confidence,” he added.
According to Olayinka, the prevailing monetary environment continues to make relatively low-risk placements with the CBN attractive compared with lending to businesses facing high operating costs and uncertain demand.
“Faced with this reality, banks prefer to earn relatively risk-free returns by placing funds with the CBN rather than extending credit to businesses struggling under heavy input costs and uncertain demand,” he said.
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