Banks And Other Entities Reach Historic High Of N16.5Tn In Borrowings From Cbn.

Kayode Tokede

The borrowing of Nigerian banks and merchant banks from the Central Bank of Nigeria (CBN) has reached a new high of N16.5 trillion in July 2024, reflecting the continued tightening of monetary policies by the CBN.

This reported amount is the second highest after the peak of N21.74 trillion in March 2024, which coincided with the increase in the Monetary Policy Rate (MPR) and adjustments to the asymmetric corridor and Cash Reserve Ratio (CRR) for merchant banks.

In the latest meeting in July 2024, the MPC voted to raise the benchmark interest rate by 50 basis points to 26.75 percent, marking the fourth consecutive hike this year.

Alongside this rate hike, the MPC also adjusted the asymmetric corridor around the MPR and kept the CRR constant.

The reported N16.5 trillion borrowing represents a Month-on-Month (MoM) and Year-on-Year (YoY) growth of 336.32 percent and 1716.3 percent, respectively.

Banks and merchant banks access borrowing from the CBN through the Standing Lending Facility (SLF) window while depositing excess cash with the CBN through the Standing Deposit Facility (SDF) window.

As the MPR stands at 26.75 percent, financial institutions borrowing from the CBN must pay 31.75 percent per annum if they utilize the SLF.

In June 2024, banks and merchant banks borrowed N3.78 trillion from the CBN, representing a decline of 65 percent from the previous month’s borrowing.

Throughout 2024, these institutions have borrowed an estimated total of N73.99 trillion from the CBN, experiencing a significant increase from N11.16 trillion borrowed in the same period of 2023.

In July 2024, banks and merchant banks deposited N1.84 trillion with the CBN, which is a decrease of 63 percent compared to the previous month.

Analysts attribute the increasing borrowing from the CBN to the tightening of monetary policy, resulting in low liquidity for banks, making it cheaper for them to borrow from the CBN.

While the hike in MPR and adjustments to the asymmetric corridor may reduce liquidity and increase the cost of credit, the fiscal side is seen as having a significant role in taming inflation and addressing structural challenges in the economy.

Compared to its African peers, the CBN’s decision to hike rates contrasts with Kenya’s and South Africa’s decisions to maintain their rates.

The MPC’s decision to increase the interest rate by 50 basis points reflects their focus on curbing inflation and consolidating previous hikes in aggregate demand.

The MPC also appreciated the government’s efforts in addressing food supply shortages through measures such as removing import tariffs on staple foods.

Considering the tightening liquidity conditions, the MPC’s adjustments are expected to impact funding costs for banks, particularly through the SLF window.

Between the start of the year and July 19, 2024, banks accessed a total of N73.6 trillion through the SLF, highlighting its importance as a support for banks during liquidity constraints.