CBN lending to banks grows by 447% to N21.7trn

By Dominion Adebisi

The Central Bank of Nigeria (CBN) lending to Nigerian banks grew significantly by 447 per cent Year-on-Year (YoY) to N21.74 trillion in March 2024 when compared to N3.98 trillion the apex bank lends to banks in March 2023.

The Business Times gathered that CBN in the previous month, February 2024, lent a sum of N5.97 trillion to banks through the Standing Lending Facility (SLF), a significant increase of 1,214 per cent YoY from N453.7 billion February 2023.

In addition, the apex bank lent banks in January 2024 a sum of N2.75 trillion, a growth of 419.95 per cent YoY from N528.16 billion in January 2023.

In all, the CBN, according to its financial data in first quarter of (Q1) 2024, lend banks a sum of N30.45 trillion, an increase of 514per cent YoY from N4.96 trillion in first quarter of 2023.

The CBN provides the SLF, a short-term lending window for banks and merchant banks, to access liquidity to run their day-to-day business operations.

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Analysts attributed the increasing banks borrowing from CBN to dwindling Naira at the foreign exchange market, coupled with rising inflation rate and apex bank mopping up excess liquidity in the financial sector.

Reacting, the Chief Executive Officer of the Centre for Promotion of Private Enterprises (CPPE), Dr. Muda Yusuf stated that, “This is a reflection of liquidity pressure some of the banks are going through. The facility is typically short term.

“This may not necessarily indicate that the banks are stressed or unstable. Meanwhile, the recapitalisation of banks is long overdue. The minimum capital requirements of N25 billion is no longer adequate, if discounted for inflation.”

On his part, the Vice president, Highcap Securities, Mr. David Adnori, said: “The development points to lack of liquidity on the part of banks. Monetary policy has been tightening and this has led to low liquidity. It is cheaper for banks to borrow from the CBN. This development is not positive but negative.

“We cannot continue to tighten because it will reflect of economic growth,” he said.

Part of measure adopted by the CBN to tighten liquidity in the financial system was when the Monetary Policy Committee of the CBN in March 2024 unanimously narrowed the asymmetric corridor to +100/-300 basis points around the Monetary Policy Rate (MPR).

The MPC of the CBN voted to raise the MPR significantly to 24.75per cent at its second meeting in 2024, higher than our expectation of 150basis points.

“Thus, bringing the MPR to its highest level ever – 24.75per cent. Notably, the meeting reflects the committee’s commitment to ensuring price stability and managing inflation expectations in the near term.

The committee voted to retain Cash Reserve Requirement (CRR) at 45.0per cent and retained the Liquidity ratio at 30per cent.

Furthermore, they adjusted the CRR of merchant banks from 10 per cent to 14.0 per cent

The financial data by CBN also revealed that banks and merchant banks deposit with CBN dropped by 7.29 per cent to N1.6 trillion in Q1 2024 from N1.73 trillion in Q1 2023.

The banks use Standing Deposit Facility (SDF) to deposit excess funds with the apex bank and it comes with interest.

SDF is an overnight deposit facility that allows banks to park excess liquidity (money) to CBN and earn interest.

The CBN governor, Mr. Olayemi Cardoso had announced that the removal of the cap on remunerable SDF is to increase activity in the SDF window and manage liquidity.

In January 2024, Banks and merchant banks deposited N1.07 trillion with CBN, a 83.37 per cent YoY from N584.79billion in January 2023, while in February 2024, it stood at N330.72billion, a decline of 50.6 per cent from N668.9 billion in February 2023.

It dropped further in March 2024 to N196.37 billion, a decline of 58.34 per cent YoY compared to N471.4 billion in March 2023.

Amid removal of cap on SDF, banks and merchant banks have maintained strong position in borrowing rather than depositing with the CBN.

CBN in a circular dated 2014 had disclosed that the remunerable daily placements by banks at the SDF shall not exceed N2billion.

According to the CBN, “The SDF deposit of N2billion shall be remunerated at the interest rate prescribed by the Monetary Policy Committee from time to time. Any deposit by a bank in excess of N2 billion shall not be remunerated. The provisions of this circular took effect on July 11, 2019.”

However, the CBN has over the years maintained that strong patronage at the SDF confirms healthier liquidity in the banking system.

CBN had maintained that the strong patronage at the SDF confirmed healthier liquidity in the banking system, stressing that banks and merchant banks were in search of better yields.