Deposit Money Banks (DMBs) are steadily reducing their usage of the Central Bank of Nigeria’s (CBN) Standing Deposit Facility (SDF), following the monetary authority’s recent move to adjust the asymmetric corridor surrounding the benchmark interest rate.
The Monetary Policy Committee lowered the Standard Standing Facility Corridor to +50/–450 basis points, down from the former +250/–250 basis points. This policy shift triggered a broad decline in money market rates and signaled a mild expansionary direction in monetary conditions.
Analysts at Anchoria Securities Limited explained that the revised corridor is designed to discourage banks from lodging excess liquidity with the CBN. By weakening the incentive to park idle funds at the Apex Bank, authorities aim to redirect liquidity toward private-sector lending to stimulate credit expansion and economic activity.
In recent months, banks had opted to place substantial excess liquidity with the regulator to earn the previously attractive 24.5% deposit rate, amid declining appetite for private-sector lending caused by rising credit default risks. This behavior pushed lenders toward investment securities as a safer means of supporting earnings, reducing their core lending activity.
With the corridor adjustment now in effect, the SDF rate has fallen to 22.50% from 24.50%, trimming banks’ earnings by 2% on placements with the CBN. Borrowing costs from the Apex Bank have also moderated, though lending facility usage has remained tight in the fourth quarter — an indication of stable liquidity conditions.
On Thursday, liquidity levels opened at about ₦2.0 trillion, a decline of ₦267.8 billion from the previous balance. AIICO Capital Limited attributed the drop primarily to the sharp contraction in banks’ placements at the CBN’s SDF window, which tumbled to ₦1.8 trillion — representing a reduction of ₦880.8 billion.
Market watchers note that banks are recalibrating their positions and exploring alternative investment avenues, following the diminished attractiveness of CBN placements. With interest rates held steady, analysts expect a possible pickup in interest for fixed-income securities as yields remain competitive.
Money market funding costs eased slightly, with the average rate slipping by 2 basis points. The Open Repo Rate (OPR) held at 22.50%, while the Overnight (O/N) rate edged downward by 4 basis points to 22.71%. Analysts anticipate rates to remain around current levels barring any sudden liquidity shifts.
 are steadily reducing their usage of the Central Bank of Nigeria’s (CBN) Standing Deposit Facility (SDF), following the monetary authority’s recent move to adjust the asymmetric corridor surrounding the benchmark interest rate.){kind=link}