Banks Borrowed N18.09tn from CBN in October
The Central Bank of Nigeria (CBN) has disclosed that deposit money banks and merchant banks in Nigeria borrowed a total of N18.04 trillion from the CBN in October 2024. This connotes a 31,565 per cent increase to the N57.14 billion borrowed in October 2023.
The Nigerian financial sector is confronted with multiple liquidity obstacles that affect banks, businesses, and the economy. These obstacles are result of structural economic challenges, policy decisions, regulatory constraints, and global market influences.
Financial experts have cited high borrowing costs and interest rates, foreign exchange shortages, credit constraints and Non-Performing Loans (NPLs), regulatory restrictions and Cash Reserve Requirements (CRR), currency volatility and inflation rate, as some of the key challenges causing liquidity issues in Nigeria.
The CBN said, “The MPC adjusted the upper corridor of the standing facilities to 5.00 per cent from 1.00 per cent around the MPR, at its 296th meeting. Consequently, the suspension of the Standing Lending Facility (SLF) is hereby lifted and Authorised Dealers should send their request for SLF through the Scripless Securities Settlement System (S4) within the operating hours of 5.00pm to 6.30pm.
To this end, Authorised Dealers are permitted to access the SLF at 31.75 per cent and permitted to access Intraday Lending Facility (ILF) to avoid system gridlock at no cost if repaid the same day.
The five per cent penalty (as stated in the S4 business rules) is retained, for participants who do not settle their ILF, which the system will convert to SLF at 36.75 per cent.
Collateral execution (the rediscounting of instruments pledged by participants at the penal rate by CBN) is reintroduced as stipulated in the approved repo guidelines. “The circular takes immediate effect.”
Mr David Adnori, Vice President of Highcap Securities, stated in a conversation with THISDAY, “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 not reflect on economic growth. I submit that as far as taming the current elevated inflation in Nigeria is concerned in view of its major non-monetary drivers, the fiscal side holds the ace.”
Afrinvest stipulated “Note the particular importance of the SLF as a support for banks amid liquidity crunch induced by contractionary interest rate policy.
Elsewhere, businesses might continue to strain under the weight of elevated borrowing costs — a necessary evil to starve decades-high inflation. That said, we are of the view that MPR as a tool has its limitations in addressing structural issues, like insecurity and weak availability of infrastructure to support productivity, amongst other things.
We note that fiscal policy reforms are necessary to fix some of these issues and the monetary policy side can only do so much.
Therefore, we assert that continued rate hikes without complementary and decisive fiscal efforts might only increase the burden on businesses without much effect on inflation. Nonetheless, the decision to decelerate the pace of tightening indicates awareness of these underlying complexities.”
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