Liquidity: Banks, Others Deposit N4.95tn with CBN in June 2024

Kayode Tokede  

Nigerian Banks and merchant banks in June 2024 opted to deposit an estimated N4.95 trillion excess liquidity with the Central Bank of Nigeria (CBN) amid challenges in the foreign exchange market and double-digit inflation rate.

For the first time in 2024, banks deposit with CBN outpaced borrowing amid unstable naira at the foreign exchange market and stagflation currently facing Nigeria economy.

According to financial data of the apex bank, the N4.95 trillion deposited in June is the highest this year as the CBN cutdown Loan-to-Deposit (LDR) by 15 percentage points to 50 per cent from 65 per cent

“Following a shift in the Bank’s policy stance towards a more contractionary approach, it is imperative to review the LDR policy to align with the current monetary tightening by the CBN,” the CBN said.

The banks  anks deposit with CBN in June 2024 is about 579.27per cent increase when compared to N579.27 billion banks and merchant banks deposited in June 2023.

Banks use Standing Deposit Facility (SDF) to deposit excess funds with the apex bank and it comes with interest and Standing Lending Facility (SLF), a short-term lending window for banks and merchant banks, to access liquidity to run their day-to-day business operations.

The CBN governor, Mr. Olayemi Cardoso had announced that the removal of the cap on remunerable SDF is to increase activity in the SDF window and manage liquidity.

THISDAY gathered that in six months of 2024, banks and merchant banks have deposited N7.9 trillion as against N2.41 trillion deposited with the CBN in the corresponding period of 2023.

The breakdown revealed that banks and merchant banks in January 2024 deposited N1.07 trillion with CBN, a 83.37 per cent YoY from N584.79billion in January 2023, while in February 2024, it stood at N330.72billion, a decline of 50.6 per cent from N668.9 billion in February 2023.

It dropped further in March 2024 to N196.37 billion, a decline of 58.34 per cent YoY compared to N471.4 billion in March 2023.

In April, banks deposited N428.98 billion and between May and June, N943.08 billion and N4.96 trillion was deposited with the CBN, respectively.

As regarding borrowings, banks and merchant banks have borrowed an estimated N57.5 trillion in first half of 2024, representing an increase of 461 per cent from N10.25 trillion between January and June 2023.

Speaking with THISDAY, on significant increase in bank and merchant banks borrowing from CBN, Vice President Highcap Securities, Mr.  David Adnori, stated that, “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.

He stated, “We cannot continue to tighten because it will reflect of economic growth.”

Amid removal of cap on SDF, banks have maintained strong position in borrowing rather than depositing with the CBN.

CBN in a circular dated 2014 had disclosed that the remunerable daily placements by banks at the SDF shall not exceed N2billion.

According to the CBN, “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.”

However, the CBN has over the years maintained that strong patronage at the SDF confirms 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.

Experts stated  that financial institutions prefer depositing with CBN as it is safe and risk-free, stressing that the present business environment has forced banks and merchant banks to deposit less with CBN.

An Investment Banker & Stockbroker, Mr. Tajudeen Olayinka, said, “The most significant factor of banks intensified depositing with CBN 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.”