Banks borrowing from CBN drops by 82.15% on increased liquidity

Deposit Money Banks (DMBs) borrowing from the Central Bank of Nigeria (CBN), known as the Standing Lending Facility (SLF) declined by 82.15 percent to N714.10 billion in May 2023, from N4.11 trillion in the preceding month.

This is with an average daily request of N35.70 billion, relative to N256.66 billion in April, according to the CBN’s monthly economic report.

The decline in banks’ borrowing followed increased liquidity position in the banking system that was influenced by injections via the Federation Account Allocation

Committee (FAAC), at N655.93 billion, as well as through the Nigerian Treasury Bills (NTBs) and CBN bills maturities put at N324.43 billion and N85.00 billion, respectively.

Conversely, deposits increased to N450.25 billion, with an average daily placement of N21.44 billion, compared with N224.29 billion with an average daily placement of N14.02 billion in the preceding month.

The applicable rates for the standing deposit facility and standing lending facility increased by 50 basis points to 11.50 and 19.50 per cent, respectively, following the hike in the policy rate by 50 basis points to 18.50 per cent in May.

Nigeria’s Central Bank has consistently maintained a hawkish monetary policy stance since May 2022, to rein in inflation. At its last Monetary Policy Committee (MPC) meeting in July 2023, the CBN raised its benchmark interest rate to 18.75 percent.

The report noted that there was no conduct of Open Market Operation (OMO) auctions in the review month, same as in the preceding month. However, maturing bills amounting to N85.00 billion were redeemed.

The NTBs and FGN Bonds market remained active. At the NTB auctions, bills with tenors ranging from 91 to 364 days, amounting to N324.43 billion, N1,632.26 billion, and N324.43 billion were offered, subscribed,

and allotted, respectively, relative to N281.10 billion, N1,099.46 billion and N281.10 billion, in the preceding month. Stop rates declined across the various maturities on offer, driven by increased banking system liquidity. Notably, investors sustained a preference for longer-term securities (364 days), which accounted for 92.0 per cent of total subscriptions.

During the month under review, FGN Bonds of 10-, 20- and 30-year tranches were offered in the period. Total amount offered, subscribed and allotted were N360.00 billion.

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N478.92 billion, and N368.16 billion, respectively, relative to N360.00 billion, N444.03 billion, and N368.67 billion in the preceding month.

Marginal rates at the auction closed slightly higher at 14.95 (±0.85) per cent, compared with 14.90 (±0.90) per cent in the preceding month.

Key short-term interest rates trended downward on account of increased banking system liquidity. The average interbank and Open Buy Back (OBB) rates shed 3.5 and 4.5 percentage points, respectively,

to close at 12.31 and 12.60 per cent. The Nigerian Interbank Offered Rate (NIBOR) also declined across the different tenors. The NIBOR-Call and NIBOR-30 fell by 4.4 and 2.1 percentage points to 13.14 and 12.89 percent, relative to their levels in the preceding month.

Key short-term interest rates trended downward on account of increased banking system liquidity.

Consequently, the average interbank and Open Buy Back (OBB) rates shed 3.5 and 4.5 percentage points, respectively, to close at 12.31 and 12.60 per cent. The Nigerian Interbank Offered Rate (NIBOR) also declined across the different tenors.

The NIBOR-Call and NIBOR-30 fell by 4.4 and 2.1 percentage points to 13.14 and 12.89 per cent, relative to their levels in the preceding month.

The direction of lending rates was mixed. The prime lending rate increased marginally by 0.02 percentage points to 14.07 per cent, relative to its level in April, while the maximum lending rate declined modestly by 0.3 percentage points to 28.31 per cent.

The weighted average term deposit rate increased by 0.4 percentage points to 5.93 per cent, relative to the level in the preceding month, culminating in a slightly narrower spread of 22.4 percentage points between the weighted average term deposit and maximum lending rate, relative to a spread of 23.0 percentage points in April.