Nigeria Banks Park Record ₦51.5tn at CBN as Bonds Overwhelmed

Nigeria commercial banks parked a net ₦51.5 trillion with the Central Bank of Nigeria (CBN), in January to earn risk-free returns rather than lending to a volatile real sector.

The reduction in the Standing Deposit Facility (SDF) rate from 24.50% to 22.50% in November, was expected to help spur credit growth by significantly reducing the return banks get for depositing excess cash with the CBN.

The Nigerian debt market in early 2026 was defined by a massive liquidity surplus, estimated at ₦5.6 trillion in January alone, according to data from Cardinal Stone, in a February 11, fixed income report led by analyst Olaolu Boboye.

This tidal wave of cash—driven by maturing Open Market Operation (OMO) bills and coupon payments—has however created a divergence in the yield curve. While short-term rates are crashing due to excess supply of cash, long-term yields are edging higher as the Federal Government net-issued N1.3 trillion to fund its 2026 budget deficit.

The market is currently witnessing a “flight to yield,” where investors are desperately trying to lock in higher rates before the central bank’s expected pivot toward easing later in the year.

The Liquidity Paradox: ₦51.5 Trillion in Idle Cash

Despite the CBN’s tightening stance, the system is awash with Naira, leading to record-breaking activity at the Standing Deposit Facility (SDF):

• The SDF Surge: Commercial banks have parked a net ₦51.5 trillion with the CBN to earn risk-free returns rather than lending to a volatile real sector, according to data from Cardinal Stone, in a February 11, fixed income report led by analyst Olaolu Boboye.

• NTB Demand: The February 4, 2026, Treasury Bill auction saw a staggering ₦4.59 trillion in subscriptions—nearly four times the amount offered. The 364-day bill was the star, attracting ₦4.39 trillion as investors raced to secure yields above 20%.

• Interbank Stability: Funding rates (OPR and OVN) have remained relatively stable, hovering around 22.5%–22.7%, as the sheer volume of cash offsets the CBN’s attempts at aggressive mop-ups.

FX Market Synergy: The $2.7 Billion Milestone

The excess liquidity hasn’t just stayed in bonds; it has filtered into a more robust foreign exchange market via the OMO segment:

• Record Turnover: On January 27, 2026, the FX market recorded a single-day turnover exceeding $2.7 billion, supported by sustained Foreign Portfolio Investment (FPI) inflows. Monthly FX trading value averaged $584.9 million in January.

• Naira Strength: The increased supply of dollars helped the Naira strengthen by 2.7% in January, closing at ₦1,391/$.

• Carry Trade Appeal: High local yields continue to attract offshore investors who are “buying the Naira” to invest in high-interest OMO and NTB instruments.

The MPC Outlook: A “Hawkish Hold” in February

The 304th Monetary Policy Committee (MPC) meeting is scheduled for February 23–24, 2026. Analysts expect the committee to maintain a “cautious” stance:

• Rate Decision: Most experts predict a “HOLD” at 27% for the Monetary Policy Rate (MPR). While inflation is moderating toward the 16% target, the CBN is wary of “interpreting uncertainty” and pre-election liquidity risks.

• Mop-up Intensity: Expect the CBN to ramp up OMO auctions in late February to drain the projected ₦4.6 trillion in upcoming liquidity, preventing it from attacking the exchange rate.

• The PENCOM Pivot: A new circular allowing Pension Fund Administrators (PFAs) to increase equity stakes could see billions of Naira rotate out of the fixed-income market into the NGX, potentially putting upward pressure on bond yields while boosting stock prices.

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