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Banks borrowing from CBN surges by N1.8tn

Between January and April, Deposit Money Banks and Merchant banks’ borrowing rose from N495.5bn to N2.3tn, indicating an increase of N1.8tn (364.7 per cent).

This is despite the apex bank’s assertion that DMBs are sound, safe and resilient, suggesting that these banks have adequate capital to absorb unexpected losses.

In a statement issued in July by the Director, Corporate Communications Department, CBN, Osita Nwanisobi, the bank maintained the same position, insisting that the Nigerian banking system had proven to be very sturdy in spite of the global challenges posed by the coronavirus pandemic.

The CBN also assured the public by explaining that “routine examination and stress test for financial institutions operating in the country indicated that no licensed DMB was under any form of financial distress. And that the banks have adequate capital to absorb unexpected losses.”

Banks borrow from the CBN through the Standing Lending Facility while they place deposit with the apex bank through the Standing Deposit Facility.

According to the CBN Economic Report for January 2021, banks’ borrowing from the CBN through the SLF stood at N492.50bn, while SDF was N528.33bn.

This suggests that banks made more deposits than borrowings from the CBN in January.

“Total request for the SLF and granted from January 1–31, 2021 was N492.50bn, made up of N68.30bn direct SLF and N424.20 Intraday Lending Facilities converted to overnight repo.

“Daily average was N35.18bn in 14 transaction days from January 1–31, 2021 with a total interest of N0.29bn. Total SDF granted, during the review period, was N528.33bn with a daily average of N26.42bn in 20 transaction days from January 1-31, 2021.

“Daily request ranged from N4.70bn to N42.59bn. Cost incurred on SDF in the month stood at N0.08bn,” the report read.

However, based on the Economic Report for April, while SLF stood at N2.3tn, mainly driven by tight liquidity in the financial sector, SDF was N118.94bn.

The report stated, “The bank, in April 2021, published the revised Guidelines for the Conduct of Repurchase Transactions under the CBN Standing Facilities, which reviewed the tenored repo rates downwards by 200 basis points.

“Activities at the standing facility windows showed predominance of the lending window over the deposit window with applicable rates for the SLF and SDF at 12.5 per cent and 4.5 per cent, respectively.

“The recourse to standing facility resulted in a net lending of N2,183.64bn, due to tight liquidity in the banking system.

“Total request for the SLF in April 2021 was N2,302.58bn (made up of N1,543.52bn direct SLF and N759.06bn intra-day lending facility converted to overnight repo).

“Daily request averaged N135.45bn in the 17 transaction days with total interest earned at N1.33bn. Total SDF granted, during the review period, was N118.94bn with daily average of N7bn in the 17 transaction days.”

It added that cost incurred on SDF in the review month stood at N0.23bn.

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