Amid  Christmas Rush,  Banks Borrow N7.04tn from CBN in 10 Days 

Kayode Tokede  

Following increased business activities, banks and merchant banks  in 10 days of December  2024 have borrowed an estimated N7.04 trillion from the Central Bank of Nigeria (CBN) to meet their customers’ demand.  

Nigerian banks and merchant banks borrow from the apex bank using the Standing Lending Facility (SLF) and it is a line of short-term credit available to draw on when they need to meet immediate short-term withdrawals from their customers.

The interest rate at which these financial institutions borrow from CBN has changed amid hike in Monetary Policy Rate (MPR) by the Monetary Policy Committee (MPC) of the CBN-currently at 27.50 per cent. 

It was learnt that the financial institutions in the first 10 days in December 2024 have borrowed from the CBN at an increase rate of 32.50 per cent as the asymmetric corridor around the MPR at +500/-100 basis points.

As of November 2024, when MPR was at 27. 25 per cent before it was moved to 27.50 per cent, the   banks and merchant banks were borrowing from the CBN at 32.25 per cent. 

As gathered by THISDAY from the CBN “financial data”, banks and merchant banks in 11 months of 2024 have borrowed N114.6 trillion, representing about 579 per cent Year-on-Year (YoY) increase from N16.87 trillion borrowed in the corresponding period of 2023.

The interest rate at which these banks borrow from CBN has changed this year amid the Monetary Policy Committee hike in Monetary Policy Rate.

However, the members of the CBN towards the end of November 2024 meeting, voted to hike MPR to 27.50 per cent, making it an all-time high.

So far in 2024, the MPC members have voted to increase interest rate from 18.75 per cent to 27.50 per cent amid its mandate to tackle inflation rate and unstable Naira at the foreign exchange market.

The Director of the Financial Markets Department, CBN, Dr. Omolara Duke in a circular stated that  the apex bank allowed banks to borrow at a rate of 31.75 per cent when the MPR was at 26.75per cent.

Banks can access the SLF through the Scripless Securities Settlement System (S4) within the specified operating hours of 5:00 pm to 6:30 pm. Additionally, authorised dealers are permitted to access the Intraday Lending Facility (ILF) at no cost, provided it is repaid on the same day.

He stated: “The MPC adjusted the upper corridor of the standing facilities to five per cent from 1.00 percent around the MPR, at its 296th meeting.

“Consequently, the suspension of the SLF is hereby lifted and Authorised Dealers should send their request for SLF through the Scripless Securities Settlement System (S4) within the operating hours of 5.00pm to 6.30pm.

“To this end, Authorised Dealers are permitted to access the SLF at 31.75 per cent; Permitted to access Intraday Lending Facility (ILF) to avoid system gridlock at no cost if repaid the same day;

“The five per cent penalty (as stated in the S4 business rules) is retained, for participants that do not settle their ILF, which the system will convert to SLF at 36.75 per cent;

“Collateral execution (the rediscounting of instruments pledged by participants at the penal rate by CBN) is reintroduced as stipulated in the approved repo guidelines. “The circular takes immediate effect.”

Analysts have hinted that the increasing MPR has forced banks and merchant banks to sustain borrowing from CBN, stressing that the rush for festive season spending has further driven increasing borrowing from CBN.

The Vice Chairman, Highcap Securities Limited, Mr. David Adnori attributed the N7.04 trillion banks and merchant banks borrowing from CBN to increasing demand by banks customers, stressing that inflation rate and unstable naira at the foreign exchange market also played a critical role.

He, however, said the tighten liquidity in the financial sector forced increasing banks and merchant banks sustained borrowing from the CBN in 10 days, adding that inflation rate may increase further in December 2024. 

Analysts at Afrinvest Research had stated 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. Elsewhere, businesses might continue to strain under the weight of elevated borrowing costs — a necessary evil to starve decades-high inflation. That said, we are of the view that MPR as a tool has its limitations in addressing structural issues, like insecurity and weak availability of infrastructure to support productivity, amongst other things.

“We note that fiscal policy reforms are necessary to fix some of these issues and the monetary policy side can only do so much.Therefore, we assert that continued rate hike without complementary and decisive fiscal efforts might only increase the burden on businesses without much effect on inflation. Nonetheless, the decision to decelerate the pace of tightening indicates awareness of these underlying complexities,” they said.

However, banks can also deposit free cash with the CBN via the Standing Deposit Facility (SDF).

Nigerian banks and merchant banks have deposited N3.56 trillion with CBN in the 10 days of December 2024. 

CBN recently announced it has raised the interest rate on deposits of banks in its SDF to 26.5 per cent effective immediately.

This represents a 0.75 percentage point increase from the 25.75 per cent raise in August 2024.

CBN disclosed this in a circular signed by its Director, Financial Operations Department, Dr. Omolara Duke.

According to the apex bank, the increase in interest rate on banks deposits in SDF was based on the decision reached at the 298 meeting of the MPC where the Committee retained the asymmetric corridor at +500/-100 around the MPR and removed the 2nd tier of the SDF of 19 per cent on deposits above N3 billion.

CBN said: “At the 298 meeting of the MPC, the Committee retained the Asymmetric Corridor at +500/-100 around the MPR and removed the 2nd tier of the Standing Deposit Facility (SDF) of 19 per cent on deposits above N3 billion. The SDF will now be remunerated on a single tier basis which is currently the MPR minus 100 basis points. Consequently, all SDF will be remunerated at the prevailing SDF rate of 26.5 per cent. This circular supersedes the earlier circular on the Asymmetric.”