There are indications that both commercial banks and merchant banks are relying more on the Central Bank of Nigeria for liquidity, as their borrowing from the central bank has escalated over the past eight months of 2023.
Up until the conclusion of August 2023 this week, data from the Central Bank of Nigeria, as accessed by our correspondent, shows that a cumulative sum of N12.46 trillion was borrowed by commercial banks and merchant banks during the initial eight months of the current year.
In contrast, during the first eight months of 2022, these financial institutions had borrowed N6.96 trillion from the central bank, marking a significant 79 percent increase.
To access lending from the central bank, commercial banks and merchant banks employ the Standing Lending Facility (SLF) window. Moreover, they deposit funds with the apex bank through the Standing Deposit Facility window (SDF).
As per investigations, the banks turned to the SLF window during the initial eight months of 2023 amidst the backdrop of the Central Bank of Nigeria’s adoption of a more stringent monetary policy stance.
The apex regulatory body for banking has established the Short-Term Lending Facility (SLF) as a means for commercial banks and merchant banks to access liquidity required for their day-to-day business activities.
Data obtained from the Central Bank of Nigeria (CBN) by The PUNCH revealed that during the period spanning January to June of the present year, commercial and merchant banks borrowed N10.25 trillion from the CBN using the SLF window. This marked a Year-on-Year (YoY) increase of 138 percent from the N4.3 trillion borrowed in the corresponding H1 2022 period.
Quarterly figures indicated that the amount for the first quarter, standing at N4.95 trillion, surpassed the total for the entire first half of the previous year.
A monthly breakdown showed that borrowing by commercial and merchant banks from the CBN started at N528.16 billion in January and decreased to N453.7 billion in February 2023. This figure then surged by a substantial 776.22 percent to N3.98 trillion in March, which was second only to the N4.47 trillion recorded in April of the same year.
Furthermore, borrowing for May and June 2023 totaled N590.29 billion and N235.06 billion respectively. Additionally, SLF borrowing was reported as N908.43 billion in July and N1.3 trillion in August.
Commenting on the situation, Dr. Muda Yusuf, a former Director-General of the Lagos Chamber of Commerce and Industry, noted that the figures reflect liquidity pressures some banks are currently experiencing. He clarified that while the SLF facility is typically short-term, it does not necessarily indicate financial stress or instability for the banks. Dr. Yusuf also emphasized the overdue need for bank recapitalization due to inflation-adjusted minimum capital requirements.
Tajudeen Ibrahim, a financial expert at Chapel Hill Denham, mentioned that this development highlights the liquidity shortage banks are facing. He attributed this to the tightening of monetary policy, resulting in reduced liquidity. Ibrahim further explained that borrowing from the CBN is a more cost-effective option for banks. While he acknowledged the negative aspects of this trend, he expressed concerns about the potential negative impacts of continuous tightening on economic growth.
