Deposit Money Banks (DMBs) and Merchant Banks borrowing from the Central Bank of Nigeria (CBN) discount window known as the Standing Lending Facility (SLF) dropped to N11.01trillion in 2022, representing a decline of 15 per cent from N13.01 trillion borrowed in 2021.
DMBs and merchant banks through the SLF access short-term liquidity from the CBN for their daily business operations.
The CBN lends money to DMBs and merchant banks through the SLF at interest rate of 100 basis points (bpts) above the Monetary Policy Rate (MPR) of 16.5 per cent.
Finance experts attributed the decline in DMBs and merchant banks’ borrowing to tight liquidity conditions in the banking system.
According to data released by the CBN, DMBs and merchant banks in 2022 borrowed N313.48billion, and in February, it dropped to N186.48billion.
CBN in its economic report for January 2022 said, “Total SLF contracted considerably by 52.4 per cent to N338.40 billion from N711.54 billion in December 2021, a fallout of the improved banking system liquidity in the period.”
In March, SLF by DMBs and merchant banks increased to N377.13billion and in April, it moved to N612.43billion, representing an increase of 62.39 per cent.
However, for the month of May, it increased to N897.05billion and further increased to N1.93trillion in June, a month the CBN hike its MPR to 13 per cent from 11.5 per cent.
The governor of CBN, Mr. Godwin Emefiele had said the money market rates oscillated within and outside the Standing Facilities Corridor (SFC) in May, reflecting the prevailing liquidity conditions in the banking system.
The financial data also revealed that SLF in July, it dropped to N1.46trillion and in August, it dropped sharply to N1.19trillion.
CBN in its financial data also revealed that SLF by DMBs and merchant banks dropped to N836.5billion in September.
In addition, the data revealed: N464.07billion in October; N1.56trillion in November and N1.19trillion in December 2022.
Speaking with THISDAY, the Vice President, Highcap Securities Limited, Mr. David Adnori said uncertainty in the nation’s economy forced banks and merchant banks to shun borrowing from CBN.
According to him: “Banks and merchant banks have excess liquidity and might not need to borrow from CBN. Besides, economic uncertainty has started to surface following the 2023 general elections.”
In his reaction, the Chief operating officer of InvestData Consulting Limited, Mr. Ambrose Omordion stated that DMBs and merchant banks in 2021 had borrowed enough funds from the CBN to meet their daily obligations.
He stressed that the nation’s economy last year had normalized given the total ease of movement that gives room for financial institutions to reduce borrowing from the CBN in 2022.
Omordion explained that DMBs and merchant banks are maintaining effective risk management in a move to cutdown down Non-performing Loan (NPL) in the financial sector.
He added that: “banks and merchant banks with an increasing deposit from customers prefer to ;lend from their books rather than accessing the CBN discount windows to borrowing needed funds to run daily operations.”
Meanwhile, while DMBs and merchant banks’ patronage of the CBN’s SLF dropped in 2022, their deposits with the regulator increase in the year under review.
DMBs and merchant banks through the Standing Deposit Facility (SDF) deposited N3.21trillion with CBN in 2022, an increase of 5.7per cent from N3.03trillion reported in 2021.
Analysts noted that increasing deposit with CBN is against the backdrop of attractive interest rates, maintaining that banks are skeptical about lending to real sectors amid tension towards 2023 general election.
The CEO, Wyoming Capital & Partners, Mr. Tajudeen Olayinka had attributed the surge in DMBs and merchant banks’ deposits with CBN to uncurtaining in the business environment over rising insecurity, among others.
According to him, “The most significant factor is the increasing level of threat in the environment of business in Nigeria, arising from: insecurity, supply chain problems, rising inflation, and poor purchasing power, low level of productivity, rising unemployment, liquidity overhang and paucity of risk-free financial instruments.”
He added that, “As a result, most banks prefer to be debited by CBN for running short of LDR limit, as against extending credit to businesses that are finding it difficult to survive. It is all about managing risk.”
The CBN in 2021, issued a guideline with terms and conditions on how DMBs and eligible institutions can access its window, known as SLF and Term Repurchase Facility (TRF).
The objective of the facilities is to provide naira liquidity to eligible institutions that are unable to access funds at the interbank market. The rates on the facilities are set at margins above expected market rates, so as to provide sufficient incentives for banks to explore the interbank market, before seeking resources from the CBN for funds.
