Nigerian Banks Avoid Lending to Real Sector, Deposit N37 Trillion With CBN

• In 2025, Nigerian banks and merchant banks significantly increased their deposits with the CBN, totalling N37.05 trillion in the first four months, up 1549% year-over-year
• This surge in deposits comes as banks avoid lending to the real sector due to rising inflation, insecurity, and low productivity, with many opting to park funds in the CBN’s Standing Deposit Facility.
• Analysts attribute this shift to liquidity challenges, risk management strategies, and a high interest rate offered by the CBN, further amplified by global interest rate hikes and economic uncertainties

Legit.ng journalist Zainab Iwayemi has 5-year-experience covering the Economy, Technology, and Capital Market.

In response to the growing threat to Nigeria's business environment from supply chain issues, inflation, low purchasing power, insecurity, and low productivity, banks and merchant banks have avoided lending to the real sector.

Instead, their deposits with the Central Bank of Nigeria (CBN) grew to N17.83 trillion in April 2025, a notable 243% increase from N5.2 trillion in March 2025.

According to CBN financial data, commercial and merchant banks deposited N37.05 trillion with the central bank in the first four months of 2025, increasing 1549% year-over-year (YoY) from N2.25 trillion in the same period in 2024.

The apex bank's Standing Deposit Facility (SDF) statistics showed that since the year began, bank deposits have steadily increased as interest rates and inflation uncertainty have grown.

The SDF is a lower corridor of the Monetary Policy Rate (MPR) where discount stores and Deposit Money Banks (DMBs) can deposit money with the CBN for an interest rate overnight.

Another avenue for DMBs and discount stores to borrow money from the CBN is the Standing Lending Facility (SLF), an upper corridor monetary policy rate that usually consists of the benchmark policy rate plus a margin.

According to This Day findings, DMBs borrowed more money overall in the first four months of 2025 than they deposited with the CBN.

The total amount borrowed during the period under review was N54.96 trillion, while the total amount deposited was N37.05 trillion. According to a This Day analysis of the financial data, the largest amount that banks and merchant banks deposited with CBN was N17.83 trillion in April 2025.

Analysts react to increase in bank deposits

Analysts ascribed the increase in bank deposits with the CBN to a number of factors, including increased insecurity and business environment uncertainties.

“The most significant factor is the increasing level of threat in the environment of business in Nigeria, arising from: insecurity, supply chain problems, rising inflation and poor purchasing power, low level of productivity, rising unemployment, liquidity overhang and paucity of risk-free financial instruments,” said Investment Banker & Stockbroker, Tajudeen Olayinka.

“As a result, most banks prefer to be debited by CBN for running short of LDR limit, as against extending credit to businesses that are finding it difficult to survive. It is all about managing risk.”

Speaking, the Vice President, Highcap Securities, David Adnori, said banks and merchant banks in the first four months were maintaining effective risk management in a move to cut down NPL.

He added:

“banks and merchant banks with an increasing deposit from customers prefer to lend to CBN rather than their customers to maintain NPL below five per cent threshold.”

CBN slashes emergency loans to FG

Legit.ng reported that in a sign of tightening monetary and fiscal policy, the Central Bank of Nigeria (CBN) reduced its Ways and Means advances to the federal government by 59%.

The central bank provides the federal government with Ways and Means Advances—a form of emergency loan—when revenues fall short. According to the CBN’s 2024 financial statement, released over the weekend, these short-term loans totalled N7.94 trillion by the end of 2023.

However, that amount fell to N3.27 trillion in 2024, marking a decline of N4.68 trillion or 58.9%.

Source: Legit.ng