Banks increase borrowing from CBN by 395% to N4.7trn.

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Banks’ borrowing from the Central Bank of Nigeria (CBN) skyrocketed by 395.2% week-on-week to N4.72 trillion, a significant increase from N953.11 billion the previous week.¹ This surge in borrowing is attributed to the CBN’s tight monetary policy aimed at curbing inflation.

The CBN provides two short-term lending windows for banks: the Standing Lending Facility (SLF) and Repo lending. These windows help banks bridge temporary liquidity gaps. Through the SLF, the CBN lends money to banks at an interest rate of 500 basis points above the Monetary Policy Rate (MPR). The repo arrangement involves purchasing banks’ securities with an agreement to sell back at a higher price.

On the other hand, the CBN accepts deposits from banks through its Standing Deposit Facility (SDF), paying an interest rate of MPR minus 100 basis points. Despite increased interest rates, banks’ deposits with the CBN fell sharply. Data from the CBN shows that banks’ deposits in the SDF plummeted by 56.8% week-on-week to N1.16 trillion, down from N2.69 trillion the previous week.

The CBN’s monetary policy decisions, including raising the Cash Reserve Ratio (CRR) for commercial and merchant banks, have contributed to the increase in borrowing. The CRR was raised to 50% and 16%, respectively, up from 32.5% and 10% at the beginning of the year.

In an effort to control inflation, the CBN has implemented a series of monetary policy decisions. Last year, the CBN raised the interest rates on deposits in its SDF to 25.75% in August and 26.5% in November. The November change was implemented as part of the decisions made during the 298th Monetary Policy Committee (MPC) meeting.

These decisions have had a significant impact on banks’ borrowing and deposit patterns. As the CBN continues to tighten its monetary policy, banks are likely to continue relying on the apex bank’s lending facilities to meet their liquidity needs.

Reacting to the development, a financial analyst said, “The increase in banks’ borrowing from the CBN is a reflection of the tight liquidity conditions in the banking system. The CBN’s decision to raise the CRR and MPR has reduced the amount of liquidity available to banks, forcing them to rely on the apex bank’s lending facilities.”

Another analyst noted, “The fall in banks’ deposits with the CBN despite the increase in interest rates is a surprise. It may be due to the fact that banks are prioritising lending to the real sector over depositing funds with the CBN.”

As the CBN continues to navigate the challenges of inflation and economic growth, its monetary policy decisions will be closely watched by market participants and analysts.

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