CBN’s lending to commercial banks declines by N350b

Short-term deposits with regulator spike by 42 per cent m/m

Data obtained by The Guardian from the Central Bank of Nigeria (CBN) suggest that money deposit banks (DMBs) could be struggling to park excess cash holdings despite low access to funds by the real sector.

According to the financial data, DMBs’ total deposits with the CBN through standard deposit facility (SDF), a window through which the commercial banks offload their short-term excess liquidity, which stood at N192.4 billion in August, jumped by 42 per cent to N272.92 billion month-on-month (m/m).

Compared with July’s figure, the amount lodged with the apex bank in August had spiked by 216.7 per cent, suggesting an increase in activity on the window in the past two months. The total amount commercial banks deposited with the regulator in July for minimal interest compared with the high commercial rates was N60.76 billion.

In the third quarter, commercial banks deposited a total of N526.08 billion with the CBN through the SDF, with the amount lodged hitting the highest point in September.

Unlike the commercial interest rates, which peaked at 28.5 per cent in August according to CBN data, banks earn the equivalent of monetary policy rate (MPR) less 700 basis points (bps) for SDF that meets the conditions of the window.

On the other hand, banks pay the Central Bank an equivalent of MPR plus 100 bps as the interest rate on any amount accessed from the standard lending facility (SLF), a window which lenders could draw from to meet short-term liquidity needs.

While SDF has been on the rise in recent months, SLF declined by as much as N350. 5 billion in September, when the total amount accessed stood at N836.5 billion. The volume fell by approximately 30 per cent in the month.

The figure had slumped from N1.46 trillion in July to N1.19 trillion or 18.6 per cent in August. The CBN’s total short-term loans through the standard facility window last quarter was N3.48 trillion.

The amount accessed through SLF last quarter was N6.9 billion higher than N3.43 trillion, which built up gradually from April and spiked in June when the value hit N1.93 trillion. The amount was over 200 per cent of N897.05 billion borrowed in May. In April, the banks borrowed N612.4 billion.

Activities at the repurchase order (repo), a short-term agreement to sell securities to buy them back at a slightly higher price used by banks to meet oversight liquidity challenge, slowed in September as per data analysed by The Guardian. Overall, the banks exchanged a total of N5.88 trillion through repo in Q3.

The value is almost twice the N2.99 trillion repo traded in the previous quarter. But over half of the figure recorded in Q3 took place in April, that is, before the beginning of the current aggressive monetary tightening. Last month, the value dropped by 42 per cent N1.2 trillion from N1.62 trillion in August.

During liquidity squeeze, banks tend to transact more in repo transactions and access SLF. These slow when the banks are awash with liquidity. The Guardian had reported recently that banks would resort more to SDF window as the cost of borrowing blunts access to funds by the private sector.

It would be recalled that the Monetary Policy Committee (MPC), the rate-fixing arm of the CBN, has jacked up the benchmark rate by 400 bps since May to rein in inflation and cool capital outflow. The monetary authority said it would continue to hike the rate if convinced that excess money supply continues to weigh heavily on inflation.