Afrigather Nigerian business banks are shying away from borrowing from the Central Financial institution of Nigeria (CBN), their last resort, regardless of the liquidity squeeze within the banking system.
Knowledge from the CBN confirmed that banks borrowing from the apex financial institution’s lending window, referred to as the Standing Lending Facility (SLF) declined by 44 % month-on-month to N12.17 trillion in April 2024 from N21.74 trillion recorded in March 2024.
Industrial banks’ credit score to the federal government has witnessed a one-year decline of 28.84 %, following the liquidity tightening of the CBN.
Knowledge obtained from the CBN confirmed that credit score to the federal government declined to N19.59 trillion in April 2024, down from N27.53 trillion recorded within the corresponding interval of March 2023.
The decline in credit score to the federal government is in keeping with the decline in credit score to the entire economic system by banks through the interval underneath evaluation. The decline is basically on account of the contractionary stance of the CBN as mirrored within the enhance within the money Reserve Ratio (CRR) and the Financial Coverage Fee (MPR), analysts stated.
Ayokunle Olubunmi, head of economic establishments rankings at Agusto Consulting, make clear current banking tendencies, noting that banks’ diminished borrowing from the CBN aligns with the present financial technique. “If charges are excessive, the obligor pays excessive charges,” Olubunmi defined, “and banks are growing their lending charges. The lending charges of banks are literally within the 30s now. The variety of these taking these loans will cut back.”
Olubunmi emphasised that banks have turn out to be extra cautious, recognising that the flexibility of debtors to repay loans diminishes underneath strained financial situations. “Banks have realised that the flexibility of individuals taking the loans to pay again will cut back due to what is occurring within the economic system,” he stated. “What you see now’s that the majority banks are decreasing their actions. So, if the banks will not be lending, meaning additionally they want much less cash as a result of what they’re doing is virtually monetary intermediation. If they aren’t lending, meaning they don’t have to get cash from completely different sources additionally.”
He additionally highlighted the shift from final 12 months’s arbitrary Money Reserve Ratio (CRR) coverage applied by the CBN, which regularly resulted in surprising debits from banks’ reserves. “Do not forget that final 12 months, what the CBN was implementing was an arbitrary CRR coverage,” Olubunmi famous. “You can get up to seek out they’ve debited all of your positions, however with what now we have now, banks can plan. These days, banks had a whole lot of shocks; you may get up one morning and realise that you just want some huge cash to fill your place. However now, with this 12 months’s CRR, the CBN is adhering to it. It’s simpler for banks to plan.”
Olubunmi identified that the discount in emergency borrowing from the CBN is primarily because of the apex financial institution’s Central contractionary measures. “All these emergency funds, most banks don’t wish to go to that CBN window as a result of it’s all the time just like the final resort as a approach of shoring up their place,” he defined. “In case you can plan your liquidity on time, you realise that the variety of banks that will probably be going to the CBN window for his or her liquidity wants will cut back. Primarily, it’s primarily due to the contractionary measures of the CBN.”
Supporting his evaluation, Olubunmi added, “In case you take a look at the info, you’ll discover that credit score to the non-public sector additionally declined as a part of the contractionary measures of the CBN.”
The mortgage granted by business banks to the non-public sector declined by 11.93 % in March 2024, following the liquidity tightening of the CBN.
Knowledge from the CBN confirmed that credit score to the non-public sector dropped to N71.21 trillion on the finish of March 2024 in comparison with the extent of N80.86 trillion in February 2024.
On a quarter-on-quarter foundation, banks’ non-public sector credit score additionally decreased by 6.66 % from N76.29 trillion in January 2024.
As a part of its tightening measures to rein in inflation, the CBN, in a single month raised its benchmark rate of interest, referred to as the MPR by 600 foundation factors to 24.75 % in March 2024 from 18.75 % in July 2023.
Nigeria’s inflation fee elevated to 33.69 % in April 2024 from 33.2 % in March 2024, based on the most recent knowledge from the Nationwide Bureau of Statistics (NBS).
The CBN additionally elevated the CRR from 32.5 % to 45 %, adjusting the uneven hall across the MPR to +100/-700 from +100/-300 foundation factors, and retained the liquidity ratio (LR) at 30 %.
Marvelous Adiele, senior affiliate, Parthian Companions, stated in March 2024, system liquidity skilled extra strains than was recorded in April 2024.
“Regardless of the c. N700bn bond maturity, we recorded oversale (about 1300%) in 2/3 of the NTB public sale held within the month. This additionally occurred within the mop-up by the apex financial institution the place we noticed c.180 % oversale on the OMO public sale. Coupled with this, we additionally witnessed the sale of recent short-end bond tenors of about c. N2.3trn. All these, along with the statutory debits, led to the liquidity crunch skilled in March that gave rise to the N21.74 trillion SLF recorded within the month. Month-on-month, Mar-24 recorded about 1.8x illiquidity Apr-24 recorded, therefore the decline in banks accessing SLF,” she stated.
Why do banks borrow from the CBN?
Banks borrow from the central financial institution for varied causes, together with assembly short-term liquidity wants, fulfilling reserve necessities, and managing fluctuations of their money positions. It’s a approach for them to make sure they’ve sufficient funds available to cowl their obligations and keep stability within the monetary system.
What rate of interest does the CBN cost banks for borrowing from it?
It’s normally one % above the Financial Coverage Fee (MPR), stated a Lagos-based funding banker. This fee serves as a benchmark for the rates of interest that banks use to lend to one another and clients. The MPR is normally set by the CBN’s Financial Coverage Committee (MPC) and adjusted periodically to handle inflation and stimulate financial progress.
Why is the CBN the final resort for banks?
The CBN being the final resort lender signifies that banks flip to it solely after they can’t get hold of funds elsewhere. This usually occurs when banks are unable to satisfy their liquidity necessities by means of interbank borrowing or different means. CBN acts as a lender of final resort to stabilise the monetary system and stop liquidity crises.
Why have the banks diminished their borrowing from the CBN?
Following the liquidity tightening of the CBN, banks have diminished their lending to the economic system and the federal government and won’t want extra loans from the CBN window.
