The Big Borrow: Nigerian Banks’ Central Bank Debt Explodes by 395% to ₦4.72 Trillion

Abuja, Nigeria – In a significant development within Nigeria’s financial sector, commercial banks’ borrowing from the Central Bank of Nigeria (CBN) escalated by 395.2% week-on-week, reaching ₦4.72 trillion in the week ending February 7, 2025, up from ₦953.11 billion the previous week.

This substantial increase is attributed to the CBN’s stringent monetary policies aimed at curbing rising inflation. The apex bank has implemented measures such as elevating the Monetary Policy Rate (MPR) and adjusting the Cash Reserve Ratio (CRR) to tighten liquidity within the banking system.

The CBN provides short-term lending to banks through mechanisms like the Standing Lending Facility (SLF) and Repurchase Agreements (Repo).

The SLF allows banks to address temporary liquidity shortages at an interest rate of 500 basis points above the MPR. Conversely, Repo transactions involve the CBN purchasing securities from banks with an agreement to resell them at a predetermined date and price, facilitating liquidity management.

In contrast, banks’ deposits with the CBN via the Standing Deposit Facility (SDF) experienced a sharp decline, decreasing by 56.8% to ₦1.16 trillion from ₦2.69 trillion the preceding week.

This drop occurred despite the CBN’s recent increases in interest rates on SDF deposits, which were raised to 25.75% in August and further to 26.5% in November 2024, as part of the decisions made during the 298th Monetary Policy Committee meeting.

The surge in borrowing underscores the challenges faced by Nigerian banks in managing liquidity amid the CBN’s aggressive monetary tightening.

As the central bank continues its efforts to control inflation, financial institutions may encounter increased funding costs, potentially impacting their lending activities and profitability.

Analysts suggest that the elevated borrowing levels reflect the banks’ reliance on CBN facilities to meet short-term liquidity needs, a situation that may persist if inflationary pressures remain unabated. The financial sector will need to navigate these dynamics carefully to maintain stability and support economic growth.

This development highlights the delicate balance the CBN must maintain between implementing policies to control inflation and ensuring sufficient liquidity within the banking system to support economic activities. The coming weeks will be critical in assessing the effectiveness of these measures and their impact on the broader economy.