New Telegraph

Banks borrowed N9.12trn from CBN in six months

Deposit money banks in the country borrowed a total of N9.12 trillion from the Central Bank of Nigeria’s (CBN) Standing Lending Facility (SLF) window in the first six months of this year, latest data released by the apex bank shows. The amount is N5.89 trillion (64.53 per cent) more than the N3.23trillion that the lenders borrowed through the SLF in the corresponding period of 2020.

In contrast to the increased SLF borrowing by the lenders, the data indicates that DMBs placed a total of N1.81 trillion at the CBN’s Standing Deposit Facility (SDF) window in the first half of this year, a significant drop compared with N3.09 trillion in the same period of 2020. DMBs borrow from the CBN through its SLF window to carry out their business activities and meet liquidity commitments, while they use the SDF window for deposit placement.

New Telegraph’s analysis of the 2021 Financial Markets Department (FMD) Half Year Activity report recently released by the apex bank shows that total request for the SLF in January 2021 was N492.50billion -made up of N68.304 billion direct SLF and N424.20 billion Intraday Lending Facility (ILF)) converted to overnight repo. For February, the data indicates that total request for the SLF stood at N476.50billion (comprising N210.56billion direct SLF and N265.93billion ILF converted to overnight repo. Also, the data shows that total request for the SLF in March jumped to N881.37billion (comprising N743billion direct SLF and N138.36billion ILF). Similarly, request for the SLF soared to N2.59trillion and N4.10 trillion in April and May respectively.

For June, however, the request for the SLF dropped to N587.89billion. In addition, the numbers indicate that the apex bank’s total interest earnings from the SLF in H1’21 stood at N5.19billion compared with N2.02billion in the corresponding period of last year. According to the CBN, DMBs visited its SLF window more frequently in the first half of this year compared with the situation in 2020 as a result of the tight liquidity conditions in the banking system. The apex bank said: “In the review period, the average daily request for SLF was N83.68 billion in 109 business days, of which ILF conversion was N28.73 billion, representing 34.00 per cent of total requests.

The average daily interest income was N0.05 billion. “In the corresponding period of 2020, the average daily request was N34.05 billion in 95 business days, of which ILF conversion was N12.11 billion, while average daily interest income was N0.02 billion.

The increased patronage in SLF in the review period reflected tight liquidity conditions in the banking system.” It further stated: “In the review period, patronage at the SDF window declined to an average daily amount of N15.13 billion for the 120 business days, from N25.14 billion for the 123 business days in the corresponding period in 2020. “Similarly, the average daily interest payments on the deposits decreased to N2.38 million, from N9.61 million in the corresponding period of 2020. The reduced volume of transactions was due to tight liquidity conditions in the banking system.”

However, analysts note that the increased borrowing from the SLF window is primarily a result of the CBN frequently hitting DMBs with significant debits for not complying with its 27.5 per cent Cash Reserve Ratio (CRR) directive. CRR is the minimum amount DMBs are expected to retain with the CBN from customer deposits. In January 2020, the apex bankincreasedtheCRRfrom 22.5 per cent to 27.5 per cent as part of its efforts to encourage DMBs to increase lending to the private sector. Specifically, CBN Governor, Mr. Godwin Emefiele, had said at the end of the January 2020 meeting of the apex bank’s Monetary Policy Committee (MPC) that “the committee is confident that increasing the CRR at this time is fortuitous as it will help address monetaryinduced inflation whilst retaining the benefits from the bank’s Loan to Deposit (LDR policy), which has been successful in significantly increasing credit to the private sectoraswellaspushingmarketinterestratesdownwards.

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