In the first five days of July 2024, Deposit Money Banks’ borrowing from the Central Bank of Nigeria (CBN) reached an all-time high of N5.38 trillion.
Compared to the N1.56 trillion that banks borrowed in the first five days of June 2024, this amounts to a 245 percent rise.
According to data from the CBN, it represents a 202 percent increase year over year from the N1.78 trillion borrowed by banks in the first week of July 2023.
The Standing Lending Facility (SLF) procedure is one way the central bank provides banks with liquidity.
According to analysts, banks may be experiencing short-term liquidity problems and will need to take out loans from the central bank to pay for withdrawals and other urgent commitments.
“At the moment, money is an illusion that we are experiencing. According to Ayokunle Olubunmi, head of Agusto Consulting’s financial institutions evaluations, “the amount appears lower in absolute terms.”
Even though the numbers appear high at first, he said, translating them to dollars and comparing their value to a year earlier shows a notable decrease.
To control inflation, which was 33.95 percent as of May 2024, the CBN increased its benchmark interest rate, known as the Monetary Policy Rate (MPR), by 750 basis points to 26.25 percent in May 2024 from 18.75 percent in July 2023.
Since Olayemi Cardoso became governor, the central bank has printed approximately N1.5 trillion in Open Market Operation (OMO) bills to control inflation and support the value of the naira.
Money is the basis of banks’ operations, and financing transactions is frequently a requirement. According to Olubunmi, one of the main reasons banks are turning to the CBN window for funding is the regulator of the banking industry’s tightening of liquidity.
According to Alatise Yusuf, chief investment officer of Cowry Asset Management, banks view the CBN as a last choice when they need cash to meet their funding commitments. This occurs in the context of high interest rates.
“The Overnight NIBOR was 32.4 percent on Thursday, indicating that banks are continuing to seek funding as lending rates continue to rise, despite system liquidity thinning.”
He claims that the CBN is essentially taking this action to absorb surplus liquidity in the banking sector, which would ultimately result in a decrease in the overall amount of banknotes in circulation.
“I believe, in addition, banks’ treasuries are drying up as investors reclassify their assets as a result of rising interest rates. Therefore, banks must support the CBN as a last-resort lender.”
“The Monetary Policy Committee (MPC) meeting in February 2024 saw the CBN increase banks’ Cash Reserve Ratio (CRR) from 32.5 percent to 45.00 percent. It changed the CRR for merchant banks from 10.0% to 14.0% in March 2024,” he added.
The bank of last resort is the CBN, according to Ayodele Akinwunmi, senior relationship manager, Corporate Banking Group, FSDH Merchant Bank.
“This means that banks can use the very active interbank market to cover short positions after borrowing money from the public or from one other. If necessary, banks can borrow from the CBN. This practice, wherein banks borrow from their central banks to provide discounting facilities, is commonplace around the world, including in the US, UK, and other industrialised nations. Such funding is always secured and is normally for a short period of time, frequently overnight, to meet pressing requirements. There is no reason for concern in this process.”
“In Nigeria, these borrowed amounts pale in comparison to the trillion-dollar assets of Nigerian banks.” Because Nigerian banks have experienced enormous expansion, borrowing such amounts is therefore not significant,” he stated.
According to data from the CBN, commercial lenders deposited N172.17 billion in the first week of July 2024, less than the N232.18 billion deposited in the first trading week of July 2023, in terms of bank deposits with the CBN, also known as the Standing Deposit Facility (SDF).
The N2 billion daily cap on monies deposited at the SDF window was removed by the CBN last year. Over the previous year, bank net deposits increased as a result of this adjustment.
