Banks, Others Borrowing from CBN Drops by 26.5% in January on Economic Uncertainty

Kayode Tokede

As a result of slow business activities and uncertainty surrounding the nation’s economy, banks and merchant banks borrowing from the Central Bank of Nigeria (CBN) dropped by 26.5 per cent Year-on-Year (YoY) to N313.43billion from N426.7billion in January of 2021.

Banks and merchant banks often access the CBN’s Standing Lending Facility (SLF) window to borrow funds, subject to certain eligibility requirements, in order to temporarily address their short-term liquidity obligations.

The apex bank lends money to banks and merchant banks through the SLF at interest rate of 100 basis points (bpts) above the Monetary Policy Rate (MPR) of 11.50 per cent.

The CBN also lends money to the banks and merchant banks through Repurchase (Repo) arrangement, which involves the purchase of banks’ securities with the agreement to sell back at a specific date and at higher price.

Repo, according to the apex bank financial data recorded N952.8billion in January 2022 from N9.5million reported in January 2021.
On the flip side, Banks and merchant banks deposit with the CBN dropped by 47.6 per cent to N271.7billion in January 2022 from N818.7billion recorded by the CBN in January 2021.

Banks and merchant banks through the Standing Deposit Facility (SDF) on daily basis deposit excess funds with the apex bank at an applicable interest rate of 4.5 per cent at an asymmetric corridor of +100/-700 basis points around the 11.5 per cent (MPR).

SDF is a monetary policy operation used by CBN’s around the world to absorb deposits from banks, without involving the use of government securities as collateral in return.

Analyst maintained that banks and merchant banks in January 2021 had borrowed enough funds from the CBN to meet their daily obligations.
According to analyst at PAC Holdings, Mr. Wole Adeyeye the nation’s economy in 2021 had normalized, giving room for banks and merchant banks not to borrow from the CBN in January 2022.

In his reaction, the Vice President, Highcap Securities Limited, Mr. David Adnori explained that uncertainty in the nation’s economy forced banks and merchant banks to shun borrowing from CBN.

According to him: “Banks and merchant banks have excess liquidity and might not need to borrow from CBN. Besides economy uncertainty has begin to surface following 2023 general elections.”

THISDAY had recently reported that banks and merchant banks deposit dropped to N3.03trillion in 2021 from N7.25trillion in 2020.
The CBN had in July 2019 directed that banks daily deposits placement through its SDF should not exceed N2 billion, stressing that any daily deposits above the stipulated amount will not attract interest payments.

According to THISDAY investigation, as banks’ and merchant banks deposit dropped in the year under review, borrowing significantly appreciated.

THISDAY checks also revealed that banks’ and merchant banks borrowing from the CBN grew by 79.3 per cent to N13trillion in 2021 from N7.25trillion in 2020.

The reflection is increased dependency by banks and merchant banks on the CBN to cope with the intense scarcity of funds, which prevailed in the interbank money market for most part of 2021.

The CBN had noted in its 2019 guidelines that the N2 billion deposit represents 73 per cent reduction from the previous limit of N7.5 billion introduced way back in 2014.

In November 2014, the CBN said it observed that banks and discount houses preferred to keep their idle balances in the SDF with the CBN.
Unfortunately, this preference contributed to the restraining of the financial intermediation process, the reason the CBN opted to review the guidelines for the operation of the standing deposit facility.

The review recommended that daily placements by discount houses and banks at the SDF should not exceed N7.5 billion.

Commenting, Head Financial Institutions’ Ratings Agusto & Co, Mr. Ayokunle Olubunmi, said: “ Because CBN is implementing the discretionary CRR, banks where being careful in terms of sourcing for deposits because it doesn’t make sense for you as your bank to get deposits and then CBN is actually holding them eternal. So, banks are being careful with deposits.

“2022 is going to be much more drastic if the CBN does not change their stance. Because what we have seen last year is that banks are getting a bit more reluctant to lend. If not well managed, it could cause a dysfunction in the economy.”

Meanwhile the CBN sales at the Primary Market Auction (PMA) gained four per cent YoY to N472.8 billion in January over increase demand by investors.

The total gained, according to the CBN’s financial data in January 2020 was N455.83 billion sales at the PMA.

A breakdown revealed that the CBN on January 7, 2022, the CBN sales N77.6billion at the PMA and the following week, January 21, 2022, PMA sales grew to N171.3 billion

Last Wednesday at its bi-weekly PMA, the CBN offered N129.33 billion for sale and recorded the highest demand level Year-till-Date (YtD), with a subscription level of N475.63 billion (Bid-to-offer ratio: 3.7x; previously 1.5x).

Eventually, the CBN allotted N223.75 billion – N2.68 billion of the 91Day, N3.54 billion of the 182Day, and N217.53 billion of the 364-Day bills with respective stop rates of 2.48 per cent (previously 2.49per cent), 3.30per cent previously 3.45per cent), and 5.40per cent (previously 5.50per cent).