Banks, Others’ Borrowings from CBN Fell by 66% to N1.4trn in Four Months

•Analysts attribute decline to high volume of currency in circulation

Nume Ekeghe

Deposit money banks (DMBs and merchant banks borrowing from the Central Bank of Nigeria’s (CBN) Standing Lending Facility (SLF) dropped year-on-year (YoY) by 66 per cent to N1.49 trillion in first four months of 2022, from N4.44 trillion in the comparable period of 2021.

Financial institutions in Nigeria through the SLF borrow funds from the apex bank to meet their financial intermediation role.

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

The trend between January and April 2022, as gathered from the CBN website revealed steady decline in bank and merchant banks’ borrowings, driven by improvement in the level of liquidity in the interbank system.

However, analysts have said the development was due to low rates on savings instruments, matured T-bills and bonds have not rolled over, resulting to more currency in circulation.

An analysis of the CBN financial data revealed that banks and other financial institutions in January 2022, borrowed N313.48 billion, which was a decline of 25.5 per cent from N426.7 billion borrowed in January 2021.

In February, the total amount borrowed by banks and merchant banks dropped further by 70 per cent to N186.48 billion from N621.7 billion in February 2021.

The trend continued in March 2022, as the CBN data revealed that N377 billion was borrowed by banks and merchant banks compared to N904.68 billion in March 2021. Also, the amount borrowed by banks and merchants’ banks in April 2022 stood at N612.43 billion, a 75.4 per cent decline from N2.48 trillion reported by the CBN in April 2021.

Finance experts attributed the development to improved business environment post Covid-19, stressing that this paved the way for banks and merchant banks to halt borrowing from the CBN this year.

In a chat with THISDAY, the Head, Financial Institutions’ Ratings Agusto & Co, Mr. Ayokunle Olubunmi said: “There are presently low rates, and remember that before 2019, T-bills were actually high and a lot of those instruments are maturing now, so there is money in circulation. And this has been the trend over the last couple of months.”

He, however predicted that the CBN might soon put out measures to curb excess liquidity in circulation.

“Once CBN feels the amount of liquidity in circulation is too much, they have different instruments they can use to mop it up. Also remember that as electioneering starts there would be more money in circulation and CBN can get more aggressive,” he added.

On his part, the Vice President, Highcap Securities Limited, Mr. David Adnori said 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, economic uncertainty has started to surface following the 2023 general elections.”

In his reaction, analysts at PAC Holdings, Mr. Wole Adeyeye maintained that banks and merchant banks in first four months of 2021, borrowed enough funds from the CBN to meet their daily obligations.

He stressed that the nation’s economy in 2021, had normalised, giving room for banks and merchant banks to reduce borrowing from the CBN in 2022.

Adeyeye explained that banks and merchant banks are maintaining effective risk management in a move to cut down down non-performing Loan (NPL) in the financial sector.

He added that: “Banks and merchant banks with increasing deposit from customers prefer to lend to CBN rather than their customers to maintain NPL below five per cent threshold demanded by CBN.”