Despite the ongoing economic hardship in Nigeria, banks have seen a remarkable increase in customer deposits, indicating that many individuals and institutions are increasingly holding their assets in cash.
According to the Central Bank of Nigeria’s (CBN) latest report on money and credit, banks’ demand deposits grew by 16.5% in the first nine months of 2024, reaching N31.08 trillion in August, compared to N26.68 trillion in December 2023. The upward trend continued quarter by quarter, with deposits rising by 8.1% in the first quarter to N28.9 trillion and by 14.3% in the second quarter to N33.0 trillion.
Additionally, regulatory filings by commercial banks and their holding companies on the Nigerian Exchange (NGX) reveal that total deposits in the banking sector reached about N136 trillion in the first half of 2024. This represents an 18.3% increase from N115 trillion in the same period of 2023 and a 63% growth from N70.5 trillion in 2022.
The surge in deposits is likely fueled by inflationary pressures, leading individuals and institutions to hold more cash. At the same time, Nigeria’s money supply (M2) hit a new high of N107.1 trillion in August 2024, reflecting a 0.75% month-on-month increase and a 65% rise from N64.8 trillion in the past year.
This increase in liquidity poses a challenge for the CBN’s Monetary Policy Committee (MPC) as they struggle to balance economic growth and control inflation. The large growth in money supply may contribute to inflationary pressures, making it more difficult for the central bank to achieve price stability while supporting economic activity.
The trend underscores the complexities facing Nigeria’s financial system as it navigates a delicate balance between liquidity and inflation management amidst ongoing economic uncertainties.