Banks, Discount Houses’ Deposit with CBN Down 16% to N738.03bn MoM

Kayode Tokede

Banks and discount houses deposit with Central Bank of Nigeria (CBN), depreciated by nearly 16 per cent Month-on-Month (MoM) to N738.03billion in August 2023 from N876.87 billion in July, amid domestic economy uncertainties and attractive yield.  

This is according to CBN’s financial data posted on its official website.

The SDF is a lower corridor of the Monetary Policy Rate (MPR) at which banks and discount houses can deposit their excess money overnight with the CBN for an interest rate.

SDF so far this year has witnessed significant patronage as banks and discount houses deposit reached highest peak of about N876.87billion in July 2023, highest so far this year. 

The applicable interest rate on SDF moved to 15.75 per cent at an asymmetric corridor of +100/-300 basis points around the 18.75 per cent MPR in July 2023.

By Monetary Policy Committee of the CBN unanimous narrowed the asymmetric corridor from +100/-700 to +100/-300 basis points around the MPR.

Acting governor of the CBN, Folashodun Shonubi had while speaking at the last MPC said the Committee remained cautious in arriving at a policy decision as members noted the need to continue to support investment, which will ultimately lead to the recovery of output growth.

“The balance of these arguments thus, leaned in favour of a moderate rate hike, to sustain efforts at anchoring inflation expectation, narrow the negative real interest rate gap, and improve investor confidence,” he said.

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

The CBN data revealed that the reported N738.03 billion SDF in August 2023 is 283.4 per cent Year-on-Year growth when compared to N192.41 billion in August 2022.

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.

THISDAY can report that the current inflation rate in Nigeria (24.08 per cent of July 2023) is above yield on Treasury bills (T-Bills) and banks are looking for risk-free investments, which SDF has provided since MPR hike.

“Furthermore, activities in fixed income securities increased as investors navigate difficult economic conditions and underlying pricing pressures in search of better yields,” according to CBN.

THISDAY gathered that banks and discount houses between January and August 2023 have deposited N4.6 trillion with CBN, an increase of 83 per cent from N2.51 trillion in corresponding period of 2022. 

Finance experts said financial institutions prefer depositing with CBN as it is safe and risk-free, stressing that present business environment has forced banks and discount houses to lend cautiously in the real sector.    

Speaking with THISDAY, the CEO, Wyoming Capital & Partners, Mr. Tajudeen Olayinka, attributed the surge in banks deposit with CBN between and August 2023 to uncurtaining in the business environment over rising insecurity, among others.

Olayinka stated that, “The most significant factor is the increasing level of threat in the environment of business in Nigeria, arising from: insecurity, supply chain problems, rising inflation and poor purchasing power, low level of productivity, rising unemployment, liquidity overhang and paucity of risk-free financial instruments.”

He added that, “As a result, most banks prefer to be debited by CBN for running short of LDR limit, as against extending credit to businesses that are finding it difficult to survive. It is all about managing risk.”

The Chief operating officer of InvestData Consulting Limited, Mr. Ambrose Omordion stated that CBN is the last resort where DMBs deposit excess liquidity that comes with an attractive yield.

He explained that, “When a bank goes to borrow from CBN, it is a sign the bank is having liquidity challenges. The latest report by CBN revealed stability in the banking sector and most of them have a strong capital base to lend to the real sector and expand.

“The LDR policy of CBN is meant to encourage bank to lend to the real sector and of recent, the private sector lending has witnessed trajectory and a bit disruption due to hike in global interest has slowed down customers borrowing from the banks. The hike in interest rate has impacted the cost of funds, which is expected to change the direction on who banks lend to customers.

“For me, the growth in deposit with CBN is a sign that these banks have enough liquidity and are taking preventive measures to checkmate Non-performing Loan (NPL).  In addition, the high interest of seven per cent depositing with CBN also another alternative to for banks to make more money and improve on profitability.”

On his part, the Vice President Highcap Securities, Mr.  David Adnori   stated that banks in 2023 are maintaining effective risk management in a move to cut down NPL.

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

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

Managing director/CBO, Optimus by Afrinvest, Ayodeji Ebo said banks will be placing money with the CBN at 16.75 per cent. If they want to borrow money from the CBN, it will be at 19.75 per cent.

He said the SDF, which is the overnight deposit, will allow banks to deposit their excess liquidity and earn interest. He noted there is a cap on the amount banks can place with the CBN, which is N2 billion.

In 2019, banks and discount houses operating in the country directed to limit their daily access to the Central Bank SDF to only N2billion or risk not being remunerated.

In a Circular to all banks yesterday, with reference number: FMD/DIR/CON/ONG/12/2019, titled: “RE: Guidelines on Accessing the CBN Standing Deposit Facility,” the CBN directed that banks shall not exceed the stipulated limit.

By this decision, it then means that banks can seek comfort in other deposit banks if they want to access more than the set N2billion.

The new Circular signed by the CBN Director, Financial Markets Department, Dr. Angela Sere-Ejembi, reads in part: “The remunerable daily placements by banks at the SDF shall not exceed N2billion.

“The SDF deposit of N2billion shall be remunerated at the interest rate prescribed by the Monetary Policy Committee from time to time,” and warned that, “Any deposit by a bank in excess of N2billion shall not be remunerated.”