Written by Kayode Tokede
Following the reduction in the Monetary Policy Rate (MPR) to 26.50 per cent from 27 per cent by the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN), banks and merchant banks’ deposits with the CBN dropped by 28.4 per cent to N92.32 trillion in April 2026 as against N128.9 trillion in March 2026.
According to the CBN financial data, banks and merchant banks’ deposits in February 2026 stood at N61.11 trillion, a 16.18 per cent increase when compared to N52.6 trillion deposited in January 2026.
Banks deposit excess cash with CBN using the Standing Deposit Facility (SDF) window as it comes with attractive interest overnight, making it a preferred option for banks to earn risk-free returns.
According to analysts, the decision by banks and merchant banks to cut their deposits with the CBN can be attributed to the recent cut in the Monetary Policy Rate (MPR) to 26.50 per cent in February 2026 from 27 per cent 2025.
Also, this was driven by the lower opportunity cost of holding cash with the CBN compared to lending it out in the market.
The Monetary Policy Committee (MPC) of the CBN in February 2026 had retained the Standing Facilities Corridor around the MPR at +50/-450 basis points.
Analysts at Cordros Research in a report after the November 24-25 MPC meeting stated that by adjusting the asymmetric corridor to +50/-450 basis points (Previous: +250 basis points/-250 basis points) around the MPR indicates a reduction in interest rates for the SLF and the SDF to 27.5 per cent (Previous: 29.5 per cent) and 22.5 per cent (Previous: 24.5 per cent), respectively.
“The adjustment is expected to ease monetary conditions and strengthen banks’ private sector credit expansion, ”they explained.
The analysts added, “Going into 2026, we expect inflation to continue easing as key drivers unwind, including sustained naira stability, better harvest outcomes and relatively stable petroleum prices. Nonetheless, in line with the MPC’s price stability goal and given that inflation is likely to remain in double digits in 2026, we believe the pace of interest rate cuts will likely remain measured.”
THISDAY analysis of the CBN data showed that in the first four months of 2026, Nigerian banks and merchant banks have deposited an estimated N334.95 trillion, indicatingabout 14,802 per cent or N2.25 trillion Year-on-Year (YoY) increase.
Conversely, banks and merchant banks borrowed an estimated N2.2 trillion from CBN in the first four months of 2026, a 94.9 per cent decline when compared to N43.42 trillion in the first four months of 2025.
Nigerian banks and merchant banks borrowed from the CBN through its Standing Lending Facility (SLF) window when in need to meet critical overnight obligations.
With an estimated N334.95 trillion deposit in the first four months of 2026, analysts attributed the growth to high credit risk concerns and a preference for the safety of the regulator window rather than lending into the real sector.
Investment Banker & Stockbroker, Mr. Tajudeen Olayinka, explained that when there is so much uncertainty in the environment of business, banks look for viable opportunities in prime borrowers around the country, and therefore, would prefer lending to CBN who is less likely to default hundred per cent in their obligations to lenders, including to their suppliers.
Olayinka in a chat with THISDAY said, “Where the prime borrowers are not largely available in good numbers, banks reprice risks to accommodate non prime borrowers that are still in good shape to accommodate shocks and high lending rates.
“In the absence of these viable opportunities, banks resort to short-term interbank placements and CBN’s standing deposit window to temporarily hold their cash. Clearly, what happened in March 2026 was a case of banks taking advantage of a better interest rate that is available in CBN’s standing deposit window to preserve their excess liquidity.
“CBN itself is aware of this development, hence it decided to sustain the floor in the MPR corridor to -450 basis points around MPR, to derisk the interest rate environment, while encouraging deposit money banks to willingly place excess liquidity in CBN, as against reckless lending.”
He added, “The February 2026 decision of MPC set MPR at 26.5per cent, with the retention of its corridor at +50 basis points and -450 basis points around MPR. So, the major factor is the uncertainty in the environment of business, arising from the global energy crisis as a result of US. and Israel war on Iran. The implications are very clear: Banks will be better accommodated in CBN’s standing deposit window to remove an obvious threat to the current high yield environment that remains the reason for high inflow from foreign portfolio investors, ensuring a better exchange rate management.
“Non performing loans in banks are better managed. Only viable and bankable opportunities are better pursued by banks. Businesses in dire need of long-term capital will prepare themselves to access more stable funding opportunities in the capital market. Greater access to the debt capital market. High interest rate will persist in the economy. The desire to see inflation at single digit by all economic agents and government in Nigeria could be further delayed. Economic growth could be challenged, as households and firms struggle to manage the likely resurgence in higher cost of living.”
