Kayode Tokede
Amid liquidity challenges in the financial sector, banks and merchant banks borrowing from the Central Bank of Nigeria (CBN) incresed to N53.7 trillion in five months of 2024, about 436 per cent Year-on-Year (YoY) from N10.02 trillion borrowed in five months of 2023.
THISDAY checks revealed that banks and merchant banks have since the beginning on this year consistently borrowed from the CBN to meet their daily obligations amid rising inflation and unstable foreign exchange market.
Banks and merchant banks borrows from the apex bank using the Standing Lending Facility (SLF) window and deposit cash with the apex bank using the Standing Deposit Facility window (SDF).
The CBN provides the SLF, a short-term lending window for banks and merchant banks, to access liquidity to run their day-to-day business operations.
A breakdown of banks activity with the CBN revealed that Deposit Money Banks and merchant banks in January 2024 borrowed N2.97trillion from CBN, about 462.3 per cent increase from N528.2 billion January 2023, while in February 2024, an estimated N5.97 trillion was borrowed from CBN, a significant increase of 1215 per cent from N453.7billion in February 2023.
However, in March 2024, about N21.74 trillion was borrowed by banks and merchant banks from CBN, a growth of 447 per cent when compared to N3.98 trillion in March 2023.
In addition, banks and merchant banks borrowing from CBN stood at N12.17 trillion in April 2024, about 172.3per cent increase from N4.47 trillion in April 2023, while in May 2024, a sum of N10.87 trillion was borrowed from the apex bank, a significant increase of 1741 per cent from N590.29billion in May 2023.
Despite removing cap on remunerable SDF, banks and merchant banks deposited N2.98 trillion in five months of 2024, about 24 per cent increase from N2.41 trillion deposited in five months of 2023.
Analysts attributed the increasing banks borrowing from CBN to dwindling naira at the foreign exchange market, coupled with rising inflation rate and the mopping up of excess liquidity in the financial sector by the CBN.
Speaking, the Vice president Highcap Securities, Mr. David Adnori, said, "The development points to lack of liquidity on the part of banks. Monetary policy has been tightening and this has led to low liquidity. It is cheaper for banks to borrow from the CBN. This development is not positive but negative. We cannot continue to tighten because it will reflect of economic growth."
On his part, the Chief Executive Officer of the Centre for Promotion of Private Enterprises (CPPE), Dr. Muda Yusuf stated, "This is a reflection of liquidity pressure some of the banks are going through. The facility is typically short term.
"This may not necessarily indicate that the banks are stressed or unstable. Meanwhile, the recapitalisation of banks is long overdue. The minimum capital requirements of N25 billion is no longer adequate, if discounted for inflation."
Recently, the CBN governor, Mr. Olayemi Cardoso announced that the removal of the cap on remunerable SDF is to increase activity in the SDF window and manage liquidity.
CBN in a circular dated 2014 had disclosed that the remunerable daily placements by banks at the SDF shall not exceed N2billion.
According to the CBN, "The SDF deposit of N2billion shall be remunerated at the interest rate prescribed by the Monetary Policy Committee from time to time. Any deposit by a bank in excess of N2 billion shall not be remunerated. The provisions of this circular took effect on July 11, 2019."
However, the CBN has over the years maintained that strong patronage at the SDF confirms healthier liquidity in the banking system.
CBN had maintained that the strong patronage at the SDF confirmed healthier liquidity in the banking system, stressing that banks and merchant banks were in search of better yields.
The analysts added that financial institutions prefer depositing with CBN as it is safe and risk-free, stressing that the present business environment has forced banks and merchant banks to deposit less with CBN.
An Investment Banker & Stockbroker, Mr. Tajudeen Olayinka, stated, "The most significant factor of banks and merchant banks have suspended depositing with CBN 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."
The financial sector has since the beginning of 2024 witnessed significant challenges ranging from foreign exchange scarcity, and CBN numerous policies in tackling rising inflation rate, among others.
Part of measure adopted by the CBN to tighten liquidity in the financial system include attractive yield on government securities and Monetary Policy Committee (MPC) members of the CBN increasing Monetary Policy Rate to 26.25cper cent from 18.75 per cent and moving Cash Reserve Requirement (CRR) to 45.0per cent from 32.5 per cent.
Nigeria's headline inflation rate continued to climb to 33.69 per cent in April 2024, its highest since March 1996, up from 33.2 per cent in the prior month.
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This marks the 16th consecutive month of acceleration in inflation, partly because of renewed weakness in the naira coupled with the removal of fuel subsidies. Food inflation, which accounts for the bulk of Nigeria's inflation basket, soared to 40.5 per cent in April, compared to March's reading of 40 per cent.
Additional upward pressure came mostly from prices of housing & utilities (28.8per cent vs 27.6per cent) and transportation (25.4per cent vs 25.5per cent), attributed to the recent increase in electricity tariffs and fuels.
Cardoso at the last MPC meeting noted that the inflationary pressure continues to be driven largely by food inflation.
"The Committee thus reiterated several challenges confronting the effective moderation of food inflation to include: rising cost of transportation of farm produce; infrastructure-related constraints along the line of distribution network; security challenges in some food producing areas; and exchange rate pass-through to domestic prices for imported food items.
"The MPC urged that more be done to address the security of farming communities to guarantee improved food production in these areas," he stated in his statement after the meeting in Abuja.
