Bank borrowing from CBN increases, reaching N1.5 billion in August

The borrowings of Nigerian banks from the Central Bank of NigeriaThe CBN’s discount window, known as the Standing Lending Facility (SLF), is increasing following a shortage of liquidity in the financial market.

Standing facilities (deposits and loans) are liquidity management instruments, according to the CBN. They serve as a means to invest excess funds overnight and recover whenever the system goes short at the end of each business day.

On August 8, 2022, banks borrowed N117.0 billion, the highest since the start of the year. In 10 days of August 2022, banks borrowed the sum of 299.44 billion naira, according to CBN data.

For a full month in January 2022, the SLF stood at N339.59 billion, down 24.69% to reach N255.75 billion in February 2022, according to a CBN report.

“The increase in bank borrowing may be related to tight liquidity in the system which has led to higher interbank interest rates,” said Ayodeji Ebo, Managing Director/Commercial Director of Optimus by Afrinvest.

He said that with higher interbank interest rates, borrowing from the CBN could be a good alternative. Based on the SLF rate of 15%, it is cheaper than borrowing from the interbank bank.

“Interbank rates have risen following a tightening of liquidity in the money market. Interbank money market rates, already rising, will test 18 per annum – 20% per annum,” said Bismarck Rewane, managing director of Financial Derivatives Company.

He said the total outstanding at the CBN rebate window will reach 1.5 trillion naira in August 2022.

According to data obtained from the CBN website.

Primary treasury bills for 365 days will drop to 9% per annum, 91 days to 3.5% per annum, Rewane said in his presentation at the Lagos Business School breakfast earlier this month.

The yield on Nigerian treasury bills rose from around 3% to 7% in less than two months from a hike in the monetary base rate of 150 basis points to 13%, then from 100 basis points to 14% by the CBN, financial market reports showed. .

The CBN’s monetary tightening was the largest rate hike since July 27, 2016 and was aimed at reducing inflation.

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As banks’ patronage of the CBN’s SLF increases, their deposits with the regulator decline. In 10 days in August 2022, the standing deposit facility of banks stood at N54.45 billion. Banks deposited a total of N293.79 billion in January 2022.

Uche Uwaleke, professor of capital markets at Nasarawa State University in Keffi, said the increase in commercial banks’ borrowing rate from the CBN comes against the backdrop of a gradual expansion of economical activities. “But it also fuels inflationary and exchange rate pressures,” he said.

“In order to encourage commercial banks to patronize the CBN permanent deposit window, the MPC may consider reducing the asymmetric corridor around the MPR from the current +1-7 to +2 5. This will increase the lending rate permanent, which discourages borrowing and raises the permanent deposit rate, which encourages CBN deposits,” he said.

On April 16, 2021, the CBN issued a directive containing conditions on how depository banks and eligible institutions can access its window, known as the Standing Lending Facility and Term Redemption Facility (TRF). ).

The purpose of the facilities is to provide Naira liquidity to eligible institutions that are unable to access funds in the interbank market. Facility rates are set at margins above expected market rates, so as to provide sufficient incentive for banks to explore the interbank market, before seeking resources from the CBN for funds.

“These guidelines contain the terms and conditions for the operation of the SLF and the TRF and should be read in conjunction with the Nigerian Master Takeover Agreement,” said Angela Sere-Ejembi, Director of CBN’s Financial Markets Department during the meeting. publication of guidelines.