Banks deposit with CBN hikes by 82% in October

As Central Bank of Nigeria (CBN continues in its bid in ensuring that commercial banks in the country lend to the real sector, check has revealed that banks deposit with the apex lender has increased by 82 per cent in October 2019.

The Daily Times checks showed that the Standing Deposit Facility (SDF) moved from N379.6 billion in September to N691.3 billion in October, representing an increase of 82 per cent.

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Although, our correspondent gathered that most Tier-II banks during the month under review increased deposit with the CBN, so as to boost liquidity and drive their daily business activities.

Specifically on July 11 this year,the central bank introduced a 60 per cent Loan-to-Deposit policy on banks, which had reduced lenders deposit with the apex bank.

The CBN in a circular addressed to all banks stated, “the remunerable daily placements by banks at the SDF shall not exceed N2billion.”

The circular, which was signed by Director, Financial Markets Department, Angela Sere- Ejembi stated that the SDF deposit of N2 billion shall be remunerated at the interest rate prescribed by the Monetary Policy Committee from time to time.

She added that, “Any deposit by a bank in excess of N2billion shall not be remunerated. The provisions of this circular take effect from July 11, 2019.”

Industry experts who commented on this development said the guideline on SDF was CBN’s aims to improve market liquidity and, subsequently, encourage deposit money banks to increase lending to the productive sector of the economy.

For instance, analysts at CardinalStone Research explained that the recent revision of SDF guidelines is unlikely to drive material credit creation in isolation.

“We, therefore, believe that the apex bank is likely to introduce additional policies to complement the recently issued regulatory measures.”

They explained further that the new measure is also not likely to drive real sector lending, given that banks are still able to redirect excess cash to money market instruments at the secondary market.

 “In our view, this factor may have contributed to the bullish sentiment in the T-Bill market in today’s session (average T-bill yields: -100bps to 11.0per cent). Similarly, we believe that the new cap on SDF placements could also force banks to direct some excess funds to interbank placements subject to the level of system liquidity,” analysts at CardinalStone Research added.

Also, a group of analysts at ARM research said the CBN has limited top four Tier 1 commercial banks access to its SDF with the policy.

According to the Lagos based research, “Notably, during periods of excess liquidity in the banking system and the accompanied depression in interbank rates, the SDF window afforded banks (especially top 4 Tier 1 banks who are perpetual net placers of funds) an avenue for placing excess liquidity in the absence of OMO or Treasury bills auctions and earn an annualized rate of 8.5 per cent.

“Notwithstanding, we believe the impact on income for the Top four Tier 1 banks (Guaranty Trust Bank, Zenith Bank, United Bank for Africa (UBA) and FBN holding, will minimal as we expect such funds to be redirected to the Tier 2 banks which had been perpetual net takers at the Standing Lending Facility, albeit at a much lower rate depending on overall market liquidity.

 “Although, we do not perceive CBN will be comfortable leaving excess liquidity with the banks, as such could result in speculation at the foreign exchange market, but it is hard to reason borrowing of same funds via OMO and T-Bills at higher rates from same banks.”

They maintained that the CBN has delivered another news to commercial banks, which now comes in the form of a voluntary rejection of excess liquidity deposited by the banks to CBN via the SDF.