CBN’s mop-up fails to halt banks’ N8.31tn liquidity build-up

The figures show that excess cash remains widespread across the banking system. Even after the CBN removed N724.32bn through an Open Market Operations auction, banks placed N8.311tn in the Standing Deposit Facility. This matters because persistent surplus liquidity can complicate the CBN’s efforts to manage monetary conditions and meet its policy objectives.

The same-day movements provide a clear example. SDF placements rose by N347.44bn from the previous day and increased by N1.345tn between 4 November and 6 November. Meanwhile, the CBN offered N1tn in OMO instruments but allotted N724.32bn after receiving N1.887tn in subscriptions.

The result is an uneven drain: money was absorbed, but banks still had substantial funds to deposit. Opening balances fell to N194.10bn from N612.06bn, suggesting funds moved into the SDF. Expected November inflows of about N13.79tn could intensify the challenge.

The Standing Deposit Facility, or SDF, is a CBN facility where banks can place excess funds. It gives banks a way to store surplus cash with the apex bank while earning interest. This matters because it provides a safe alternative when banks do not immediately lend the money or invest it elsewhere.

The article shows how the facility works in practice. Banks deposited N8.311tn in the SDF on 6 November, 2026. Placements rose N347.44bn in one day and N1.345tn between 4 November and 6 November. At the same time, opening balances fell from N612.06bn to N194.10bn, suggesting more available funds were transferred into the facility.

A rising SDF balance signals that banks are holding substantial surplus liquidity at the CBN. That can help the regulator contain excess cash, but it also raises questions about whether money is reaching businesses and households through credit. Expected inflows could keep these deposits elevated.

The liquidity build-up is large and appears persistent. Banking system liquidity increased 56.75 per cent, from N4.703tn in September to N7.373tn in October. By 6 November, banks had placed N8.311tn in the CBN’s SDF, indicating that surplus funds remained substantial.

The short-term movements point in the same direction. SDF placements rose N1.345tn between 4 November and 6 November. Over that period, opening balances fell from N612.06bn to N194.10bn, a decline of N417.96bn. Together, the changes suggest banks shifted more available money into the CBN facility.

The next pressure may come from expected November inflows. The Financial Markets Dealers Association projects about N13.79tn, mainly from OMO maturities, FAAC allocations and Treasury bills repayments. These inflows could make liquidity management harder if banks continue placing surplus cash with the CBN.

An Open Market Operations auction is a CBN operation for managing liquidity through financial instruments. In this case, the CBN offered banks two OMO bills with a combined value of N1tn. Banks submitted bids showing how much they wanted to buy and the rates they were willing to accept.

When banks buy the bills, they pay the CBN with available cash. That cash is removed from the banking system’s liquid funds, while the banks receive CBN securities. The article reports that banks bid N1.887tn, but the CBN allotted N724.32bn. The 179-day bill received N405.62bn, while the 270-day bill received N318.70bn.

This mechanism helps the CBN withdraw surplus money and influence monetary conditions. However, the operation removed less than the amount banks offered and was much smaller than the approximately N2.95tn allotted on 3 November. Its effect may therefore be limited if new inflows arrive.

The CBN received N1.887tn in subscriptions for OMO instruments worth N1tn, yet allotted only N724.32bn. The article does not state a single explicit reason for rejecting the rest. It does show that the regulator was selective about the amount of liquidity to withdraw and the rates it was willing to pay.

The allocation pattern illustrates that approach. The 179-day bill attracted N741.62bn, but only N405.62bn was allotted at a 17.25 per cent stop rate. The 270-day bill received N1.146tn, while the CBN accepted N318.70bn at a 16.54 per cent stop rate. In total, N1.163tn of bids went unaccepted.

The selective result contrasts with the approximately N2.95tn allotted on 3 November. It suggests the CBN was not automatically absorbing every available bid. With about N13.79tn in expected November inflows, market participants will watch whether the regulator expands future operations or keeps this limited approach.

When banks keep surplus cash at the central bank, that money is not being used immediately for loans or other short-term investments. Generally, this can slow the flow of credit to businesses and households. It may also reduce the risk that excess cash will push prices higher, although the article does not measure a resulting change in inflation.

The article highlights this tension directly. Banks placed N8.311tn in the SDF, where they earn interest, while the report questioned whether available liquidity was translating into increased credit. If banks prefer the SDF, borrowers may face less access to funds. If banks instead lend more, credit and economic activity could receive greater support.

Interest rates can also be affected. The CBN’s OMO stop rates were 17.25 per cent and 16.54 per cent, giving banks a return for placing funds in securities. Expected inflows of N13.79tn could prolong the imbalance and force further liquidity operations.

Commercial banks collect deposits and use available funds for lending or short-term investments. Businesses and households can then receive credit, while payments move through the banking system. The central bank influences this process by managing liquidity, or the amount of readily available money held by banks.

OMO auctions are one mechanism. When the CBN sells bills, banks pay for them with cash, reducing immediately available funds. The SDF is another channel: banks can place surplus money with the CBN and earn interest. In the article, banks placed N8.311tn in the SDF, while the CBN absorbed N724.32bn through an OMO auction.

These actions help the CBN influence credit creation and monetary conditions. With less spare cash, banks may have fewer funds available for new lending. With more liquidity, lending capacity can increase, but excess cash may complicate policy management. Expected November inflows of N13.79tn could intensify the CBN’s challenge.