Banks, Others’ Borrowing from CBN Hit All-time High of At N16.5tn

Kayode Tokede 

As the Central Bank of Nigeria (CBN) continued to tighten its monetary policies, Nigerian banks and merchant banks borrowing from the apex bank increased significantly to N16.5 trillion in July 2024, a new high.

According to the “Financial Data” of CBN, the reported N16.5 trillion is second highest after N21.74 trillion in March 2024. 

The N21.74 trillion is the highest since the Monetary Policy Committee (MPC) of the CBN in March 2024, raise its Monetary Policy Rate (MPR) from 22.75 per cent to 24.75 per cent; adjust the asymmetric corridor to +100/-300 basis points around the MPR and adjust the Cash Reserve Ratio (CRR) for merchant banks from 10.0 per cent to 14.0 per cent.

At the last meeting in July 2024, the committee voted to increase the benchmark interest rate by 50basiis points to 26.75per cent – fourth consecutive hike this year with an cumulative increase of 800basis points.

In addition, the MPC adjusted the asymmetric corridor around the MPR to +500 / -100basis, from +100 / -300asiis points.

Meanwhile, the CRR was held constant (banks: 45 per cent and merchant banks: 14per cent).

The reported N16.5 trillion represents a 336.32 per cent and 1716.3 per cent Month-on-Month (MoM) and Year-on-Year (YoY) growth, respectively as banks and merchant banks sustained borrowing from the apex bank to remain liquid and lend to real sector.

Banks and merchant banks access lending from the apex bank using the Standing Lending Facility (SLF) window and deposit cash with the apex bank using the Standing Deposit Facility window (SDF).

The CBN provides the SLF, a short-term lending window for banks and merchant banks, to access liquidity to run their day-to-day business operations.

At 26.75 per cent MPR, financial institutions that borrowed from CBN must now pay 31.75 per cent p.a to bridge if the SLF must be utilized.

THISDAY gathered that banks and merchant banks in June 2024 borrowed N3.78 trillion, a decline of 65 per cent from N10.87 trillion in May 2024.

However, in April 2024 they borrowed an estimated N12.17 trillion from CBN through its SLF window and in March 2024 about N21.74 trillion, the highest in banks and merchant banks borrowing from the CBN through the SLF.

The figure closed February and January 2024 at N5.97 trillion and N2.97 trillion, respectively.   

THISDAY can report that banks and merchant banks in seven months of 2024 have borrowed an estimated N73.99 trillion, representing an increase of 563.1 per cent from N11.16 trillion borrowed in seven months of 2023 amid rising inflation rate and unstable naira at foreign exchange market.

In the same July 2024, banks and merchant banks deposited N1.84 trillion, a decline of 63 per cent from N4.96 trillion reported by the CBN in June 2024.

Analysts have hinted that the increasing MPR has forced banks to sustain borrowing from CBN.

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. We cannot continue to tighten because it will not reflect  on economic growth.”

Recently, a Professor of Finance and Capital Market from the Nassarawa State University, Professor Uche Uwaleke, expressed that the hike in MPR to 26.75 per cent is targeted at further reducing liquidity from the banking system and jerk up cost of credit with adverse consequences on output.

He stated that, “Having done 750 basis points between February and May this year, I had predicted they would do a minimum of 50basis points or a max of 100basis points in July. I am glad to note that they chose the floor, which is a sign that a complete halt is most likely in their next scheduled meeting in September. But the adjustment to the asymmetric corridor around the MPR is a major source of concern for me. The MPC communique did not provide any explanation for increasing the SLR from +100 to +500 and the SDR from -300 to -100.

“By implication, with an MPR of 26.75 per cent, banks will now get loans from the CBN at 31.75 per cent while they will be remunerated for their excess deposits at 25.75 per cent. This will further squeeze liquidity from the banking system and jerk up cost of credit with adverse consequences on output and the equities market. The MPC communique should have made it clear why it was better to mask the tightening in the asymmetric corridor than reveal it in the MPR.

“May I observe that unlike previous MPC communiques, recent ones are silent regarding how the members voted. This information is useful at this stage even before their personal statements are published.”

He added that, “I submit that as far as taming the current elevated inflation in Nigeria is concerned in view of its major non-monetary drivers, the fiscal side holds the ace.”

Analysts at Afrinvest Research stated that the decision of the CBN’s MPC contrasted its African peers for example, Kenya’s MPC held rate constant at 13per cent in June while South Africa (8.25per cent) and Egypt (27.75per cent) maintain status quo in their July meeting.

“For Nigeria, the decision to hike rate followed an uptrend in headline inflation, for the 18th consecutive month, to 34.2per cent,” they said.

They added, “Although supply pressure on food and energy goods were the main drivers of the continued price pressure, the MPC noted that previous hikes had curbed aggregate demand, hence the need to consolidate on that front by maintaining a hawkish stand.

“Be that as it may, the limitations of MPR to correct the structural challenges in the food sector, as well as optimism that inflation will peak in the near term, informed their decision for a mild interest rate hike by 50bps.

“On the back of this, the Committee acknowledged the FG’s effort on recent measures to address food supply shortages. In particular, the apex bank highlighted the policy to remove import tariff over 150-day period on staple foods (maize, husked brown rice, wheat, and cowpeas) to alleviate food shortages.

“Our take is that MPC’s tinkering of the asymmetric corridor to further tighten liquidity conditions should exert pressure on funding cost for banks, both directly (as lenders tap the window) and indirectly (repricing of rates across money market). We note the particular importance of the SLF as a support for banks amid liquidity crunch induced by contractionary interest rate policy. For example, between the start of the year and 19th July 2024, banks accessed a total of N73.6trillion through the SLF, 8.4x inflows to SDF.”