Deposit Money Banks’ (DMB) daily borrowings from the Central Bank of Nigeria (CBN) in half-year period ended June 2022 shrank significantly by 39.3 percent to N49.54 billion, from N81.64 billion in the corresponding period of 2021 buoyed by the liquidity glut.
As part of daily financial transactions, commercial banks do borrow from CBN’s Standing Lending Facility (SLF) in order to meet financial obligations or capital intermediation role. The apex bank lends to them at a rate slightly above prevailing Monetary Policy Rate (MPR) otherwise called the interest rate.
The latest Market Activity Report for the Half Year 2022 published by the CBN recently showed that the average daily SLF was N49.54 billion in 81 transaction days, of which Intraday Lending Facility (ILF) that was converted into SLF stood at N23.02 billion or 46.47 per cent of the total. The average daily interest charged was N0.03 billion.
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In the corresponding period of 2021, the average daily SLF stood at N81.64 billion in 109 transaction days, of which ILF conversion was N27.19 billion, while average daily interest income was N0.05 billion.
“The lower patronage at the SLF window in the first half of 2022 reflected the prevailing liquidity conditions in the market,” the CBN stated in the 78-page report released last weekend.
The trend between January and April 2022, as gathered from the CBN website revealed a steady decline in bank and merchant banks’ borrowings, driven by improvement in the level of liquidity in the interbank system.
An analysis of data obtained from CBN website revealed that in January 2022, banks’ borrowings declined 25.5 per cent to N313.48 billion, down from N426.7 billion borrowed in corresponding January 2021.
In February 2022, the amount banks borrowed from CBN further dropped by 70 percent to N186.48 billion as against N621.7 billion in February 2021
In March 2022, N377 billion was borrowed by DMBs compared to N904.68 billion in March 2021. Also, the amount borrowed by banks in April 2022 stood at N612.43 billion, a 75.4 percent decline from N2.48 trillion reported by the CBN in April 2021.
An analysis of CBN data showed that banks deposited more money at the CBN’s Standing Deposit Facility as the average daily amount for SDF stood at N18.51 billion for the122 transaction days in 2022, an increase of 22.53 percent from N15.11 billion for 120 transaction days in 2021.
Similarly, the average daily interest payments on the deposits increased to N3.26 million in the review period, from N2.38 million in 2021.
“The higher patronage at the window in the first half of 2022 reflected the increased liquidity level in the banking system, compared with the corresponding period of the previous year,” says CBN.
However, financial market analysts say that banks’ preference to deposit excess cash with the CBN’s Standing Deposit Facility (SDF) rather than lending to the productive sector reflected risk aversion during the period under review.
