Severe Cash Shortage: Banks’ Borrowings from CBN Surge to N12 Trillion

Commercial and merchant banks are displaying a growing reliance on the Central Bank of Nigeria for liquidity, with their borrowing from the apex bank intensifying over the past eight months of 2023.

In the period leading up to the end of August 2023, commercial and merchant banks collectively obtained loans amounting to N12.46 trillion from the Central Bank of Nigeria, as per data obtained by our correspondent from the CBN.

This contrasts starkly with the figures from the same period in 2022, during which these financial institutions borrowed N6.96 trillion from the central bank, marking a notable 79 percent increase.

Access to lending from the apex bank is facilitated through the Standing Lending Facility (SLF) window, while funds are deposited with the apex bank using the Standing Deposit Facility window (SDF).

Examinations reveal that during the initial eight months of 2023, banks sought resources from the SLF window, partly due to the Central Bank’s more stringent monetary policy stance.

The CBN has established the SLF as a short-term lending solution for commercial and merchant banks, allowing them to secure liquidity for their everyday operations.

Data acquired from The PUNCH shows that from January to June this year, these banks borrowed N10.25 trillion through the SLF window, marking a substantial 138 percent Year-on-Year (YoY) increase from the N4.3 trillion borrowed in the corresponding period of H1 2022.

The breakdown of these figures reveals that in January, commercial and merchant banks borrowed N528.16 billion from the CBN, a number that dipped to N453.7 billion in February 2023. However, March saw a considerable surge of 776.22 percent to N3.98 trillion, the second-highest after the N4.47 trillion recorded in April 2023.

Further examination of CBN data shows borrowings of N590.29 billion and N235.06 billion for May and June 2023, respectively. Additionally, the SLF’s figures stood at N908.43 billion in July and N1.3 trillion in August.

In response to these trends, Dr. Muda Yusuf, a former Director-General of the Lagos Chamber of Commerce and Industry, commented, “This underscores the liquidity pressure some banks are facing. The facility’s nature is inherently short-term. However, this doesn’t necessarily indicate the banks are struggling or unstable. Meanwhile, the need to recapitalize banks has long been overdue. The minimum capital requirement of N25 billion is no longer sufficient, when adjusted for inflation.”

Tajudeen Ibrahim, a financial expert at Chapel Hill Denham, stated, “This situation reflects a dearth of liquidity on the banks’ part. Monetary policy has tightened, resulting in reduced liquidity. Borrowing from the CBN is a more cost-effective option for banks. This scenario isn’t positive; in fact, it’s negative. The continual tightening can have adverse effects on economic growth.”

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