By Anastasia John E.
The Central Bank of Nigeria (CBN) has reported a dramatic increase in loans to commercial banks, reaching an unprecedented N1.2 trillion in the first week of 2025. This surge highlights a significant liquidity crisis within the banking sector.
This N1.2 trillion figure marks the highest borrowing level in five years, representing a staggering 961.3 percent increase from the N114.2 billion reported during the same period in 2021, according to CBN data.
Experts attribute this surge in demand for loans—known as the Standing Lending Facility (SLF)—to a combination of liquidity constraints, tightening monetary policies, ongoing economic challenges, and regulatory pressures. The situation also underscores the severe depreciation of the naira, which has plummeted over 74 percent in value, exacerbating the funding needs of businesses and financial institutions.
Ayokunle Olubunmi, head of financial institution ratings at Agusto Consulting, noted, “The steep naira depreciation over recent years has significantly increased the funding requirements for businesses, including banks.” He further indicated that the CBN’s contractionary measures have compelled banks to borrow more from the central bank.
The SLF serves as a crucial tool for central banks, allowing commercial banks to access short-term funds to maintain liquidity and ensure financial stability within the banking system.
On an annual basis, the borrowing from the CBN has escalated sharply, with banks taking out N1.2 trillion in the first week of 2025, a 700.9 percent increase from N151.3 billion in the same week of 2024. A historical comparison over the past five years shows a troubling trend: N1.2 trillion in 2025, N151.3 billion in 2024, N329.2 billion in 2023, N48.1 billion in 2022, and N114.2 billion in 2021.
According to Business Day report , Bismarck Rewane, CEO of Financial Derivatives Company Limited, previously pointed out that banks have increasingly relied on CBN loans to acquire foreign exchange (FX), a practice that has contributed to rising inflation and intensified pressure on the naira.
Rewane explained that adjustments made by the CBN to the asymmetric corridor around the Monetary Policy Rate (MPR)—now set at +500/-100 basis points—would significantly affect borrowing costs. “Previously, banks were borrowing at around 26 percent; now they will be borrowing at nearly 32 percent. This difference of 5 to 6 percent means that the cost of borrowing from the CBN for FX has increased dramatically, which should help alleviate some pressure on the naira,” he stated.
In response to soaring inflation, which hit 34.6 percent in November 2024, the CBN has implemented a contractionary monetary policy, raising the MPR to 27.50 percent. This increase in borrowing costs has led banks to increasingly depend on the SLF to cover short-term liquidity needs.
The banking sector is currently facing a liquidity deficit of N207.6 billion, a stark contrast to the surplus of N253.6 billion reported the previous month. This deficit has driven banks to seek assistance from the CBN to maintain operational stability.
Additionally, the CBN has mandated banks to strengthen their capital bases, requiring international banks to maintain a minimum capital of N500 billion by March 2026. This directive has prompted banks to explore options in the capital market, adjust their balance sheets, and enhance liquidity positions, further increasing their reliance on the SLF.
As the MPR remains high, banks face borrowing costs exceeding 30 percent, which could erode profit margins and lead to higher lending rates for consumers. Analysts caution that to manage these elevated funding costs, banks may adopt more conservative lending practices, potentially reducing credit availability for businesses and consumers, which could stifle economic growth.
