Deposit Money Banks (DMBs) are increasingly channeling excess liquidity into the Central Bank of Nigeria’s (CBN) Standing Deposit Facility (SDF), where returns currently outpace yields on one-year Treasury bills.
A mix of maturing inflows and reduced activity at recent primary market auctions has left the banking system awash with liquidity, prompting lenders to park funds with the apex bank to optimise earnings.
According to AIICO Capital Limited, placements at the CBN’s SDF window surged to ₦5.39 trillion last week, even as system liquidity opened at a robust ₦5.73 trillion, supported by additional inflows of about ₦1.71 trillion.
Despite the liquidity glut, interbank rates stayed relatively firm. The Open Repo Rate (OPR) closed at 24.50%, while the Overnight Lending Rate (OVN) edged up by 12 basis points to 25.00%. Analysts expect rates to ease in the near term, aided by the maturity of the Sept. 30 OMO bill, barring any unexpected funding pressures.
The dynamics come on the heels of the CBN’s recent monetary policy adjustment. At its penultimate meeting of the year, the regulator cut the Monetary Policy Rate (MPR) by 50 basis points to 27.0% and narrowed the asymmetric corridor to +250/-250 basis points. This sets borrowing from the CBN at 29.5% and deposits at 24.5%.
Analysts at CardinalStone Securities note that despite the corridor adjustment, banks will likely remain net depositors with the CBN, as the SDF offers a more attractive return compared to one-year Treasury bills.
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