Banks borrowing from CBN hits record high of N1.53trn in 1-day

Deposit Money Banks (DMBs) borrowing from the Central Bank of Nigeria (CBN) window, known as the Standing Lending Facility (SLF), on Thursday hit an all-time high of N1.53 trillion in one day on liquidity tightening.

Data from the CBN showed that banks borrowed N1,53 trillion on July 4, 2024, which is more than 100 per cent compared to N11.13 billion borrowed in the corresponding period of July 4, 2023.

The CBN has raised its benchmark interest rate, known as the Monetary Policy Rate (MPR) by 750 basis points to 26.25 per cent in May 2024, from 18.75 per cent in July 2023, to rein in inflation, which is 33.95 per cent as of May 2024.

The apex bank has issued over N1.5 trillion in Open Market Operation (OMO) bills since Olayemi Cardoso took the helm as governor in a bid to stem inflation and prop up the naira.

Analysts said banks might be facing short-term liquidity shortages and need to borrow from the Central Bank to meet their immediate obligations, such as covering withdrawals or funding loans.

“We are currently experiencing an illusion of money. In absolute terms, the amount appears lower,” said Ayokunle Olubunmi, head of financial institutions ratings at Agusto Consulting. He added that while the figures might seem substantial at first glance, converting them to dollars and comparing their value to three years ago reveals a significant decline.

Banks operate on money, and they often require funds to finance transactions. Olubunmi noted that the tightening of liquidity by the banking sector regulator has been a key factor driving banks to seek funds from the CBN window.

An analyst said the Central Bank might have adjusted monetary policy, such as raising interest rates or tightening credit conditions, prompting banks to rely more on Central Bank lending.

The CBN in its February 2024 Monetary Policy Committee (MPC) meeting, raised the Cash Reserve Ratio (CRR) of banks from 32.5 per cent to 45.00 per cent. In March 2024, it adjusted the CRR for Merchant Banks from 10.0 per cent to 14.0 per cent.