Commercial banks borrow 4.4 billion naira from CBN in three months

Central Bank of Nigeria

Deposit-taking banks (DMBs) accessed a cumulative value of N4.4 trillion naira from the Central Bank of Nigeria (CBN) through its overnight lending window from June to August, according to data from of the regulator.

Banks regularly access the CBN’s Standard Lending Facility (SLF) to borrow funds, subject to certain eligibility conditions, to fill their short-term liquidity gap. On the other hand, lenders also take advantage of the Permanent Deposit Facility (SDF) window to deposit excess liquidity.

Commercial banks access the SLF at 100 basis points above the monetary policy rate (MPR). In the case of the SDF, lenders get the prevailing benchmark interest rate minus 700 basis points (seven percent).

From June to August, the total SLF stood at N4.44 trillion, with June accounting for over 43.3% of the amount viewed during the period. The amount rose from 1.93 trillion naira in June to 1.46 trillion naira in July. It fell further to 1.06 trillion last month.

In May, the SLF stood at N953.6 billion, with only the figure doubling in June. The thinking seen over the past three months may have suggested a steady moderation in short-term liquidity problems by banks. It could also suggest an aggressive reassessment of risks by banks.

The two closely related possibilities are also reflected in the behavior of the SDF trend, which could be viewed as an increasing function of the risk premium, over the period. In June, bank deposits through the SDF window stood at N265.3 billion. The amount fell to 60.8 billion naira in July only to jump 185% to 173.2 billion naira in August.

Also Read: Bank Assets Grow 22% to N65 Billion in One Year – FSSD

Last month, repurchase order activity (repo), a short-term contract to sell securities to buy them back at a slightly higher price that banks also used to manage temporal illiquidity, also fell by 55.5%. The value of the repo, in August, was 1.36 trillion naira.

In June and July, the repo registered N1.65 and N3.07 trillion respectively, bringing the three-month transaction to N6.08 trillion.

In August, banks’ exposure to repo and SLF declined, while excess demand deposits (SDF) increased. The trends suggest banks were either risk-averse or saw an increase in deposit mobilization.

Last month’s credit data is not available. But the country’s net domestic credit in July had grown by 23% since the start of the year. The figure stood at 48.76 trillion naira in December 2021 but has climbed to 59.96 trillion naira.

Over the period, credit to the private sector grew somewhat sluggishly relative to credit to the public sector. With the gap between the two major credit categories closing rapidly, credit extended to the government grew by 45% over the seven months, reaching N20.09 trillion in July.

With growth, banks’ exposure to public sector entities represents about 34% of their loan portfolio. This means that around one-third of commercial loans are held by the government and its associated entities.

While credit to the private sector also increased over the period, growth was slower. The amount increased from N34.92 trillion in December 2021 to N39.87 trillion in July.

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