Banks’ OMO cash surge lifts deposits with CBN by 150%

Nigeria’s banking system is awash with excess liquidity from Open Market Operation (OMO) repayments, driving a sharp rise in deposits placed with the Central Bank of Nigeria (CBN) just a day after the Monetary Policy Committee (MPC) reduced the returns banks earn on such funds.

The surge in liquidity pushed banks’ deposits with the CBN up by 149.7 percent on Wednesday, underscoring the scale of OMO inflows circulating in the system.

OMO refers to the process of buying and selling of government securities by the CBN as a key monetary policy tool used to regulate liquidity, manage inflation, stabilise interest rates, and maintain overall monetary stability.

Massive repayments from these instruments on Tuesday injected significant liquidity into the banking sector and reshaped interbank market dynamics by Wednesday.

CBN data showed that banks’ deposits with the regulator jumped to N2.64 trillion on Wednesday, rising by 149.7 percent compared to N1.06 trillion on Tuesday.

A market update by Parthian Partners noted that system liquidity expanded by N1.10 trillion on Tuesday, driven largely by OMO maturity inflows, bringing the opening credit balance to N2.32 trillion.

The liquidity surge dragged down short-term interest rates, with the Overnight Policy Rate closing at 22.50 percent, down 200 basis points day-on-day, while the Overnight Rate settled at 22.75 percent, down 208 basis points. Analysts at Parthian Partners said interbank rates were expected to remain within similar levels.

Ayokunle Olubunmi, head of Financial Institutions Ratings at Agusto & Co., said the steep rise in deposits may be partly coincidental, given that most monetary parameters were left unchanged by the MPC. He noted that the new asymmetric corridor is designed to discourage banks from parking excess liquidity with the CBN. “The asymmetric corridor change is even meant to discourage banks from keeping funds with the CBN,” he said.

At the end of its two-day meeting held on Tuesday in Abuja, the MPC adjusted the asymmetric corridor around the Monetary Policy Rate (MPR) to +50 and –450 basis points, from the previous +250/–250 basis points maintained since September 2025, in a move aimed at tightening control over interest rate movements.

The CBN disclosed that a total of N1.1 trillion in OMO repayments hit the system on Tuesday, the same day Governor Olayemi Cardoso announced the MPC decisions. Olubunmi noted that this could be one of the key reasons behind the spike in deposits. He also added that there is a need to confirm whether routine debits had been executed, since the CBN withdraws funds from banks every two weeks based on incremental deposits.

According to the FSDH market report for Wednesday, the OMO bill secondary market saw a broad decline in yields, with the average yield across the curve easing by 21 basis points to 20.80 percent from 21.01 percent the previous day. Short-term and medium-term yields fell by 65 basis points and two basis points respectively, while long-term maturities saw a marginal five-basis-point uptick. The OMO for February 3, 2026 bill recorded the highest buying interest with a yield drop of 127 basis points.

The MPC said its decision to maintain the monetary policy stance, while adjusting the corridor, was driven by the need to preserve gains made toward achieving low and stable inflation. The committee reaffirmed its commitment to a data-driven approach in assessing economic developments and shaping future policy.

Analysts at Comercio Partners explained that under the new corridor, the Standing Lending Facility (SLF) rate has been reduced to 27.5 percent from 29.5 percent, making it cheaper for banks to borrow short-term liquidity from the CBN. Conversely, the Standing Deposit Facility (SDF) rate has been lowered to 22.5 percent from 24.5 percent, reducing the return banks earn on parking surplus funds with the CBN. The intention, they said, is to encourage banks to channel more liquidity into lending and support real-sector growth instead of locking up excess cash in risk-free central bank deposits.

Ayodele Akinwunmi, chief economist at United Capital Plc, said it is possible that banks have high liquidity arising from certain maturities that they need to deposit with the CBN.