DMBs Borrowing from CBN Grow Expenentially from N400.96bn to N981.86bn YoY

Kayode Tokede

With the persistent aggressive liquidity mop-up by Central Bank of Nigeria (CBN), Deposit Money Banks (DMB) borrowing from the apex bank increased by 96.4 per cent Year-on-Year (YoY) to N981.86billion in first two months of 2023 as against N499.96 billion first two months of 2022.

A source in the banking sector hinted THISDAY of the apex bank’s aggressive liquidity mop-up between January and February 2023, stating that DMBs decided to access the special window to meet their daily business obligations.

The apex banking regulating body has Standing Lending Facility (SLF), a short-term lending window for DMBs and merchant banks to access liquidity to run their day-to-day business operations.

The CBN lends money to DMBs and merchant banks through the SLF at interest rate of 100 basis points above the Monetary Policy Rate (MPR) that is currently at 17.5 per cent.

The Month-on-Month (MoM) breakdown of SLF revealed that DMBs and merchant banks in January 2023 borrowed N528.16billion from CBN as against N313.35billion in January 2022 and in February 2023, it increased significantly by 143.3 per cent to N453.7billion from N186.48billion in February 2022, according to the financial data released by the CBN.

The banking sector in the first two months of 2023 has witnessed scarcity of local currency that obstructed physical cash deposit and increasing uncertainty surrounding the nation’s economy.

The Governor of CBN, Godwin Emefiele had at the first Monetary Policy Committee (MPC) in 2023 said money market rates oscillated below and within the asymmetric corridor of the standing facilities window, reflecting changing liquidity conditions in the banking system.

A senior manager in a top tier-2 bank disclosed to THISDAY of CBN’s aggressive liquidity mop-up through 

According to him, “The CBN has been aggressive in its intervention in the first two months of 2023. The CBN Cash Reserve Ratio (CRR) debits has increased significantly this year when compared to last year. DMBs always visit the SLF window when CBN debit them CRR every two weeks. When CBN mop-up liquidity, DMBs will first resort to the intervention before they build capacity again.”

With the increasing inflation rate, the CRR debit is a means to reduce banks ability to extend access cash into the system and control the volume of money in circulation.

“This policy in the short run reduces the amount of profits DMBs can make from excess credit extension and ensure DMBs will always have the right amount of cash and not fall short of funds when depositors require funds for their personal needs,” another analyst who does not want his name in print added.

Commenting, the Chief Executive officer, Wyoming Capital and Partners, Mr. Tajudeen Olayinka attributed the increase to cash scarcity, stressing that DMBs were no longer enjoying the usual cash deposits that normally come from businesses and individuals that generate significant amount of cash from relationship with various third parties.

He added that, “Economy has suffered so much from the problem created by CBN’s mismanagement of currency redesign program and deliberate cash scarcity. A program that was expected to be positive suddenly turned negative because CBN did not understand the dynamics of deliberate cash scarcity as an unusual monetary management tool.”

On his part, the vice president, Highcap securities Limited, Mr. David Adnori attributed increasing DMBS borrowing from CBN to demand from customers.

According him, “It could be that some DMBs are over-stressed and they needed money to meet existing obligations. These could have been the two major reason DMBs increase borrowing from CBN.”

Findings by THISDAY revealed that DMBs deposit with the apex bank spikes in the period amid political uncertainties in the country.

In the period under review, deposit with CBN stood at N1.25trillion, representing per cent YoY increase from N785.87billion in corresponding period of 2022.

Adnori stated that the naira design policy and political tension had forced DMBs to deposit with the CBN.