SLF: DMBs, Merchant Banks Borrowed N33.97trn from CBN in Two Months

 Kayode Tokede 

In an effort to run their day-to-day business operations and liquidity constraints in the interbank money market, Deposit Money Banks (DMBs) and merchant banks borrowed an estimated N33.97 trillion from the Central Bank of Nigeria (CBN) between January and February 2025.

Experts attributed the increasing banks’ borrowing from CBN to the dwindling naira at the foreign exchange market, coupled with the rising inflation rate and the apex bank mopping up excess liquidity in the financial sector.

According to financial data released by the CBN, the N33.97 trillion borrowed in two months of 2025 represents an increase of 257.3 per cent from N9.51 trillion borrowed in the two months of 2024.

 The CBN provides the 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.

Analysis of the CBN dada revealed that banks and merchant banks in January 2025 borrowed N9.16 trillion from CBN, a 158 per cent YoY increase from N3.54 billion in January 2024, while in February 2025, a total of N24.82 trillion was borrowed by banks and merchants through the SLF, a significant increase of 315.96 per cent YoY from N5.97 trillion February 2024.

These financial institutions in the first two months of 2025 borrowed from the CBN at an interest rate of 32.50 per cent as the asymmetric corridor around the MPR at +500/-100 basis points.

The interest rate at which these banks and merchant banks borrow from CBN has not changed in 2025 amid the Monetary Policy Committee (MPC) maintaining status quo on rates at its first MPR this year. 

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

The Director of the Financial Markets Department, CBN, Dr. Omolara Duke, had 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 26.75 per 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 per cent 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 5.00 pm to 6.30 pm.

“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.”

Experts attributed the increasing banks’ borrowing from CBN to the dwindling Naira at the foreign exchange market, coupled with the rising inflation rate and the apex bank mopping up excess liquidity in the financial sector.

Reacting, the Chief Executive Officer of the Centre for Promotion of Private Enterprises (CPPE), Dr. Muda Yusuf 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 are no longer adequate if discounted for inflation.”

On his part, the Vice President of 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 on economic growth.”