BusinessDay

CBN loans to banks rise 145.8% on cash crunch

Deposit Money Banks (DMBs) borrowing from the Central Bank of Nigeria (CBN), known as Standing Lending Facility (SLF), increased by 145.8 percent in the first half of 2021, the apex bank said in a new report.

The average daily request for SLF was N83.68 billion in 109 business days in the first half of 2021 compared to the average daily request of N34.05 billion in 95 business days in the corresponding period of 2020.

The increased patronage in SLF in the review period reflected tight liquidity conditions in the Nigerian banking system.

In the review period, the Intraday Liquidity Facility (ILF) conversion, which is the agreement in the prescribed form between the primary dealer and the Central Bank in terms of which the Central Bank provides ILF to the primary dealer, was N28.73 billion, representing 34.00 per cent of total requests. In the year 2020, the ILF conversion was N12.11 billion.

The average daily interest income was N0.05 billion in the first half of 2021 compared with the average daily interest income of N0.02 billion in the corresponding year.

Commercial banks and merchant banks continued to access the Standing Facility window, which consists of SLF and Standing Deposit Facility (SDF), subject to eligibility requirements, to temporarily address their short-term liquidity needs by borrowing from the Central Bank.

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The banks continued to utilize the standing deposit facility window to deposit their excess reserves, subject to a maximum of N2.00 billion, at the end of each business day.

In the review period, the report noted that patronage at the SDF window declined to an average daily amount of N15.13 billion for the 120 business days, from N25.14 billion for the 123 business days in the corresponding period in 2020.

Similarly, the average daily interest payments on the deposits decreased to N2.38 million, from N9.61 million in the corresponding period of 2020. The reduced volume of transactions was due to tight liquidity conditions in the banking system.

The value of transactions at the inter-bank funds market decreased by 10.10 per cent from N29.005 trillion in the first half of 2020, to N26.07 trillion in the first half of 2021. Open Buy Back (OBB) transactions, which is a money market instrument used to raise short term capital, accounted for 99.18 per cent of the total value of inter-bank transactions, while the unsecured inter-bank segment accounted for the balance of 0.82 per cent, compared with 97.48 per cent and 2.52 per cent, respectively, in 2020.

A breakdown of the transactions at the inter-bank market showed a significant decrease in call placements to N200.40 billion, from N709.25 billion in 2020. At the OBB segment, transactions decreased by 8.53 per cent to N25.86 trillion in 2021, from N28.27 trillion in the corresponding period of 2020. The decrease at both segments was largely attributed to tight liquidity in the banking system.

Godwin Emefiele, governor of the CBN, noted during the last Monetary Policy Committee (MPC) meeting in November that money market rates oscillated within the standing facilities corridor, reflecting the prevailing liquidity conditions in the banking system.

The monthly weighted average OBB rate increased to 12.18 per cent in October 2021 from 11.11 per cent in September 2021, while the monthly weighted average Interbank Call rate decreased from 13.21 per cent in September 2021, to 10.00 per cent in October 2021.

The increase in the Open Buyback rate he said reflected the tight liquidity condition in the banking system.

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