Amid Economic Challenges, Banks Borrowed N17.85tn from Central Bank in 2023
Kayode Tokede
Amid macro economic challenges, commercial and merchant banks borrowed a whooping N17.85 trillion from the Central Bank of Nigeria (CBN) to meet their daily business obligations in 2023.
This presents an increase of 60 per cent over the N11.15 trillion the financial institutions borrowed from the central bank in 2022.
Although Nigerian banks reported impressive nine months ended September 30, 2023 results, the operating conditions was intense due to high inflation, rising interest rates and US dollar shortages, in addition to continued regulatory intervention and the disruption caused by the general election and scarcity of local currency.
In Nigeria, deposit money and merchant banks access lending from the CBN using the Standing Lending Facility (SLF) window and deposit cash with the apex bank using the Standing Deposit Facility window (SDF).
The applicable rates for the SDF and SLF increased by 50 basis points to 11.50 and 19.50 per cent, respectively, following the hike in the policy rate by 50 basis points to 18.75 per cent in June 2023.
The Monetary Policy Committee of the CBN unanimously narrowed the asymmetric corridor from +100/-700 to +100/-300 basis points around the Monetary Policy Rate (MPR).
The CBN consistently maintained a hawkish monetary policy stance since May 2022, to tackle rising inflation rate, which stood at 28.20 per cent as of November 2023.
The CBN provides the SLF, a short-term lending window, for commercial and merchant banks, to access liquidity to run their day-to-day business operations.
According to THISDAY investigations, banks’ borrowing from the apex bank was fluctuating in 2023, indicating a continuous decline in banking system liquidity.
The decline in banks liquidity can also be traced to low cash deposit by bank customers, which resulted in cash scarcity in banks.
The breakdown of the borrowing revealed that commercial banks and merchant banks in Q1 2023 borrowed N4.96 trillion from the CBN as against N877.1billion in Q1 2022, while in Q2 2023, a total amount of N5.29 trillion was borrowed as against N3.44 trillion in Q2 2022.
Furthermore, the banks borrowed N6.24 trillion from CBN in Q3 2023 from N3.48 trillion in Q3 2023 and in Q4 2023, about N1.36 trillion was borrowed by the financial institutions as reported by the CBN in its financial data.
Commenting on banks and merchant banks borrowing from CBN, Finance Expert and 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.”
On his part, the Chief Executive Officer of the Centre for Promotion of Private Enterprises (CPPE), Dr. Muda Yusuf had 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.”
However, THISDAY gathered that banks and merchant banks deposit to CBN increased significantly to N12.3 trillion in 2023, representing an increase of 480.62 per cent from N3.24 trillion in 2022.
The increase is coming on the backdrop of CBN removal of the cap on the remunerable policy, among others.
A SDF is an overnight deposit facility that allows banks to lodge excess liquidity (money) with the CBN and earn interest.
The CBN governor, Mr. Olayemi Cardoso recently disclosed that the apex bank removed the cap on the remunerable SDF to increase activity in the SDF window and manage liquidity.
The bank when issuing the guideline had stated that, “With reference to the circular to all banks and discount houses, Re: Guidelines on accessing the CBN Standing Deposit Facility, Ref: FMD/DIR/GEN/CIR/05/020 and dated November 6, 2014, after further review, 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. 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.”
SDF in 2023 witnessed significant patronage as commercial and merchant banks deposit reached highest peak of about N2.41triillion in November 2023
However, the CBN has over the years maintained that strong patronage at the SDF confirm 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.
The current inflation rate in Nigeria is above yield on Treasury bills (T-Bills) and DMBs are looking for risk-free investments, which SDF has provided since MPR hike.
Commenting, the CEO, Wyoming Capital & Partners, Mr. Tajudeen Olayinka, attributed the surge in banks deposit with CBN to uncertainty in the business environment as a result of rising insecurity, among others.
He 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.”
“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.”
