Suspicion among banks may have shot up the demand for overnight funds from the Central Bank of Nigeria (CBN) to N2.78 trillion in the first quarter of 2013 as against N1.19trillion at the fourth quarter of last year, BusinessDay investigations have found.
Also, the big banks are starving the smaller banks of funds by their preference for increasing their standing deposit facility (SDF) with the CBN, in excess of the industry requirement, to earn interest.
The development was attributed to the policy of the CBN to remunerate surpluses in excess of the Cash Reserve Requirement (CRR).” SDF is currently at 10 percent.
Operationally, SLF performs the dual role of providing an arbitrage in the market conditions to prevent money market rates moving far away from the CBN rate and also providing a means for participating banks to manage unexpected (frictional) payment shocks which may arise due to technical problems in the banks’ own systems or in the market-wide payments and settlement infrastructure.
The development is fuelling calls for another round of stress tests to ascertain the health of the banks, thereby stemming another round of banking sector crisis.
Consequently, rates at the Nigeria Interbank Offered Rate (NIBOR) on Tuesday shot up, typified by call rate rising to 23.0000 from the previous day’s 14.2083 , while 7 days moved to 14.4583 from 13.2917. This is ditto for 30 days, 14.8250 from 13.4583 and 60 days at 14.8750 from 13.7083.
The CBN, in its first quarter Economic Report said, “The total Standing Lending Facility (SLF) granted during the review period was N2,781.84 billion, compared with N1,196.83 billion in the preceding quarter. The increase in the SLF demanded and granted was attributed mainly to the substantial request from one of the banks, due to the inability to raise funds at the interbank market.”
However, the CBN said the Standing Deposit Facility, which it uses to discourage banks from depositing money with it through the rate “was N11274.54 during the first quarter of 2013, representing an increase of 73.84 per cent above the level in the preceding quarter.
According to analysts at the Afrinvest, “Inspite of the increases experienced in SLF and SDF, majority of the banks still have adequate liquidity position to meet near term liabilities (Average liquidity ratio of 42% ie 12% above the CBN prescribed 30%).
However, Afrinvest Research indicates that the current SDF rate (given a 12% MPR) is relatively attractive to the banks and contributes to crowding out of bank’s financing from real sector. This highlights the need for some monetary policy easing to increase the liquidity and lending capacity of the banks as the MPC meets 20th – 21th May, 2013.”
JOHN OMACHONU
