There is evidence that both commercial banks and merchant banks are increasingly relying on the Central Bank of Nigeria for liquidity, with their borrowing from the apex bank intensifying during the last eight months of 2023.
In addition to August 2023 coming to a close this week, a combined total of N12.46tn has been borrowed by commercial banks and merchant banks from the CBN during the first eight months of this year, according to data from the CBN accessed by our correspondent.
Comparatively, during the initial eight months of 2022, these financial institutions borrowed N6.96tn from the central bank, which marks a significant 79 percent increase.
The means through which commercial and merchant banks obtain funds from the apex bank include utilizing the Standing Lending Facility (SLF) window for borrowing and the Standing Deposit Facility (SDF) window for depositing cash.
Insights reveal that banks availed the SLF window extensively during the first eight months of 2023, influenced by the CBN’s tightened monetary policy stance.
The CBN employs the SLF, a short-term lending avenue, to facilitate commercial and merchant banks in securing liquidity for their daily operational needs.
January to June this year, commercial banks and merchant banks borrowed N10.25tn from the CBN via the SLF window, reflecting a YoY surge of 138 percent compared to N4.3tn borrowed during the same period in H1 2022.
The data also indicates that the figure for the first quarter, standing at N4.95tn, exceeded the half-year value of 2022.
A breakdown of the monthly figures shows that in January, commercial banks and merchant banks borrowed N528.16bn from the CBN, with this number dropping to N453.7bn in February 2023.
However, in March, this figure witnessed a substantial 776.22 percent increase to N3.98tn, marking the second-highest value after the N4.47tn recorded in April 2023.
The CBN data further displays borrowings of N590.29bn and N235.06bn for May and June 2023, respectively.
Furthermore, the SLF figures for July and August stood at N908.43bn and N1.3tn, respectively.
Offering commentary on this trend, Dr. Muda Yusuf, a former Director-General of the Lagos Chamber of Commerce and Industry, stated, “This reflects the liquidity pressure some banks are experiencing.
Although this facility is typically short-term, it doesn’t necessarily indicate that the banks are distressed or unstable. Nevertheless, bank recapitalization is long overdue.
The current minimum capital requirement of N25 billion is insufficient, especially when adjusted for inflation.”
Tajudeen Ibrahim, a financial expert at Chapel Hill Denham, commented, “This development suggests that banks are facing liquidity shortages.
Tightening monetary policy has resulted in reduced liquidity. Borrowing from the CBN is a more cost-effective option for banks.
While this situation isn’t positive, it’s important not to over-tighten as it could hinder economic growth.”
