Nigerian Banks’ Borrowing from CBN Drops by 44.9% in November Amid Liquidity Crunch

Amid liquidity challenges in the financial sector, Nigerian banks borrowed an estimated N9.97 trillion from the Central Bank of Nigeria (CBN) in November 2024, about 44.90 per cent Month-on-Month (MoM) decline from the N18.09 trillion reported in October 2024, a report by the apex bank has revealed.

THISDAY gathered from CBN’s “financial data”, that banks borrowed a whopping sum of N114.6 trillion in the first 11 months of 2024, representing about 579 cent Year-on-Year (YoY) increase from the N16.87 trillion they borrowed in the corresponding period of 2023.

Banks borrow from the apex bank using the Standing Lending Facility (SLF), a line of short-term credit available to draw on to meet immediate short-term withdrawals from their customers.

The interest rate at which these banks borrow from CBN has changed amid the Monetary Policy Committee (MPC) hike in Monetary Policy Rate (MPR) which is currently at 27.50 per cent.

As of November 2024, when MPR was at 27.25 per cent before it was moved to 27.50 per cent, the banks were borrowing from the CBN at 32.25 per cent as the asymmetric corridor around the MPR at +500/-100 basis points.

However, the members of the CBN towards the end of the November 2024 meeting, voted to hike MPR to 27.50 per cent, making it an all-time high.

So far in 2024, the MPC members have voted to increase the interest rate from 18.75 per cent to 27.50 per cent amid its mandate to tackle the inflation rate and unstable Naira at the foreign exchange market.

The Director of the Financial Markets Department, CBN, Dr. Omolara Duke, in a circular stated that the apex bank allowed banks to borrow at a rate of 31.75 per cent when the MPR was at 26.75 per cent.

Analysts have hinted that the increasing MPR has forced banks to sustain borrowing from CBN.

Analysts at Afrinvest Research had stated that MPC’s tinkering of the asymmetric corridor to further tighten liquidity conditions should exert pressure on funding costs for banks, both directly (as lenders tap the window) and indirectly (repricing of rates across money market).

“We note the particular importance of the SLF as a support for banks amid liquidity crunch induced by contractionary interest rate policy.

“Elsewhere, businesses might continue to strain under the weight of elevated borrowing costs — a necessary evil to starve decades-high inflation. That said, we are of the view that MPR as a tool has its limitations in addressing structural issues, like insecurity and weak availability of infrastructure to support productivity, amongst other things.

“We note that fiscal policy reforms are necessary to fix some of these issues and the monetary policy side can only do so much.

“Therefore, we assert that continued rate hikes without complementary and decisive fiscal efforts might only increase the burden on businesses without much effect on inflation. Nonetheless, the decision to decelerate the pace of tightening indicates awareness of these underlying complexities.”

However, banks can also deposit free cash with the CBN via the Standing Deposit Facility (SDF).

Nigerian banks’ deposits with CBN closed November 2024 at N3.59 trillion, about 18 per cent increase from N3.05 trillion reported in November 2023.

CBN recently announced it has raised the interest rate on deposits of banks in its SDF to 26.5 per cent effective immediately.

This represents a 0.75 percentage point increase from the 25.75 per cent rise in August 2024.

Kayode Tokede

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