In 2023, commercial and merchant banks grew increasingly reliant on the Central Bank of Nigeria, marking a 32.07 percent surge in borrowings, hitting N19.81 trillion.
This leap surpassed their borrowings of N15 trillion in 2022, as revealed by CBN data.
These banks sought liquidity through the Standing Lending Facility, depositing funds using the Standing Deposit Facility, with short-term lending offered at an interest rate of 100 basis points above the Monetary Policy Rate.
The SLF is a short-term lending window for commercial and merchant banks to access liquidity to run their business operations.
A document titled “Standing Facilities and Liquidity Management in Nigeria: Progress so Far and Challenges Under an IT Environment” from the CBN website defines standing facilities (deposit and lending) as essential tools for liquidity management. They serve as avenues for overnight investment of surplus funds and to support the market in times of supply shortages, ensuring stability in interbank rates.
Amid the CBN’s strict monetary policy stance, banks notably increased borrowing from the apex bank. Between January and August, banks borrowed N12.64 trillion, followed by N7.17 trillion between September and December, indicating a substantial rise. Unverified reports suggest this surge could be linked to the CBN’s effort to manage excessive cash circulation and curb inflation.
Regarding inflation, CBN Governor Olayemi Cardoso addressed its multi-faceted nature, emphasising the money supply’s critical role.
He stated, “Concerning the real issue of inflation, as we know, there are different components of inflation: there is money supply, which is very critical, and imported inflation and structured issues.
“On the money supply, we have taken bold steps to control money supply. We have gone to the extent of increasing open market operations activities both in terms of volume and supply, all to rein in the money supply. The central bank clearly focuses on exactly where it expects the money supply to be, and we will do everything possible to defend that.”