Banks and others borrow from CBN fall 26.5% in January due to economic uncertainty

Kayode Tokede

Due to sluggish business activity and uncertainty surrounding the national economy, borrowing by banks and merchant banks from the Central Bank of Nigeria (CBN) fell by 26.5% year on year. on the other (YoY) to 313.43 billion naira compared to 426.7 billion naira in January 2021.

Banks and merchant banks often access the CBN’s Standing Lending Facility (SLF) window to borrow funds, subject to certain eligibility conditions, to temporarily meet their short-term liquidity obligations. .

The apex bank lends money to banks and merchant banks through the SLF at an interest rate of 100 basis points (bpts) above the monetary policy rate (MPR) of 11.50 %.

The CBN also lends money to banks and merchant banks through a Repurchase Agreement (Repo), which involves the purchase of bank securities with the agreement to resell on a specific date and at a higher price.

Repo, according to apex bank financial data, recorded N952.8 billion in January 2022 compared to N9.5 million in January 2021.
On the other hand, bank and merchant bank deposits with the CBN fell by 47.6% to 271.7 billion naira in January 2022 from 818.7 billion naira recorded by the CBN. in January 2021.

Banks and merchant banks, through the Standing Deposit Facility (SDF), deposit excess funds daily with the apex bank at an applicable interest rate of 4.5% in an asymmetric corridor of +100/-700 basis points around 11.5% (MPR).

The SDF is a monetary policy operation used by CBNs around the world to absorb deposits from banks, without involving the use of government securities as collateral in return.

The analyst argued that in January 2021, banks and merchant banks had borrowed enough funds from the CBN to meet their day-to-day obligations.
According to an analyst from PAC Holdings, Mr. Wole Adeyeye, the country’s economy in 2021 had normalized leaving an option for banks and merchant banks not to borrow from the CBN in January 2022.

In his reaction, the Vice Chairman of Highcap Securities Limited, Mr. David Adnori, explained that the uncertainty in the national economy forced banks and merchant banks to avoid borrowing from the CBN.

According to him: “Banks and merchant banks have excess liquidity and may not need to borrow from the CBN. Additionally, economic uncertainty began to surface after the 2023 general election.”

THISDAY had recently reported that bank and merchant bank deposits fell to N3.03 trillion in 2021 from N7.25 trillion in 2020.
The CBN had in July 2019 ordered that daily deposits by banks through its SDF should not exceed N2 billion, stressing that any daily deposit above the stipulated amount would not attract interest payments.

According to the THISDAY survey, while deposits from banks and merchant banks fell during the year under review, borrowings appreciated considerably.

THISDAY’s audits also revealed that borrowing by banks and merchant banks from the CBN increased by 79.3% to N13 trillion in 2021 from N7.25 trillion in 2020.

The reflection is an increased reliance by banks and merchant banks on the CBN to deal with the intense shortage of funds, which has prevailed in the interbank money market for most of 2021.

The CBN had noted in its 2019 guidelines that the 2 billion naira deposit represented a 73% reduction from the previous limit of 7.5 billion naira introduced in 2014.

In November 2014, the CBN said it had observed that banks and discount houses preferred to keep their unused balances in the SDF with the CBN.
Unfortunately, this preference has contributed to restricting the process of financial intermediation, which is why the CBN has chosen to revise the operating guidelines for the permanent deposit facility.

The review recommended that daily placements by discount houses and banks in the SDF should not exceed N7.5 billion.

Commenting, Mr. Ayokunle Olubunmi, Head of Financial Institutions Ratings Agusto & Co, said: “Because CBN is implementing the discretionary CRR, banks were cautious in terms of supplying deposits, as this has no makes sense to you as a bank to get deposits, and then CBN actually holds them forever. Thus, banks are careful with deposits.

“2022 is going to be much more drastic if the CBN does not change its position. Because what we’ve seen in the last year is that banks are getting a little more reluctant to lend. If not managed well, it could cause the economy to malfunction.

Meanwhile, CBN sales at the Primary Market Auction (PMA) rose 4% year-on-year to 472.8 billion naira in January, due to increased investor demand .

The total earned, according to CBN financial data as of January 2020, was N455.83 billion in PMA sales.

A breakdown revealed that CBN on January 7, 2022, CBN sales of N77.6 billion to PMA and the following week, January 21, 2022, PMA sales reached N171.3 billion.

Last Wednesday, during its bi-weekly PMA, the CBN offered N129.33 billion for sale and saw the highest level of demand since the start of the year (YtD), with a subscription level of N475.63 billion (bid to bid ratio: 3.7x; previously 1.5x).

Eventually, the CBN allocated 223.75 billion naira – 2.68 billion naira from the 91 day, 3.54 billion naira from the 182 day and 217.53 billion naira from the 364 day bills with stop rates 2.48% (previously 2.49%), 3.30% (previously 3.45%) and 5.40% (previously 5.50%) respectively.

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