By Kayode Tokede
Banks borrowing from Central Bank of Nigeria (CBN) with the use of Standing Lending Facility (SLF) window hits N5.2 trillion in 20 weeks of this year.
The banks’ borrowing from CBN dropped over stability in the foreign exchange market as the apex bank remained resilient in bridging the gap between the parallel market and official market rates.
Banks in the country through the Facility borrowed from the CBN to cover their financial shortfalls and trading obligations on short term basis as applicable interest remained at 16 per cent.
According to Nigerian NewsDirect findings, the Standing Deposit Facility has appreciated by 19.3 per cent to N1.36 trillion in 13 days of May from N1.14 trillion reported by the CBN in April.
Evidence based on available data to Nigerian NewsDirect showed that the utilisation of the SLF has been increased by some of the commercial banks in April with minimum and maximum of N50 billion and N61 billion borrowing respectively.
The CBN disclosed that a total of N885.1 billion was borrowed by banks in March as against N992 billion in February
However, early in the year, January to be precise, a total amount of about N883.6 billion was borrowed by financial institutions from the apex bank.
The CBN was concerned over the emerging signs of banking sector fragility in April as rise in average daily request of banks from the SLF window and the continued reliance of many banks on operations in the government debt market to remain solvent are all early warning signs of future threats in the banking industry.
Member of the CBN Monetary Committee Meeting (MPC), Dr. Robert Asogwa said, “While the gradual recovery from economic recession may rectify some of the causes of the increase in non-performing loans, the current preference of banks for SLF not only sends public signals of interbank fear and caution, but also introduces constant volatility in the interbank rates, and when unchecked may unnecessarily be expanding the balance sheet of the Central Bank.
“Increasing arbitrarily the rates on the SLF as a strategy to discourage banks from utilizing the window may also not be a good policy as this would unjustifiably expand the margin between the rates on SLF.”
Another member of the committee, Prof. Dahiru Hassan, said, “For the CRR, evidence based on available data showed that the utilisation of the standing lending facility (SLF) has been increased by some of the commercial banks.
“However, the current rate should be retained at 22.5 per cent because loosening would mean more available liquidity to the big banks, which can be used to hit the foreign exchange market and possibly destabilise it.”
Commenting on the trigged borrowing of commercial banks from CBN, the Managing Director, Highcap Securities Limited, Mr. David Adnori, said, “when banks go the CBN, it means they have some projects they wanted to finance but the funds are not enough. So, they access funds from the CBN through the SLF.
“When banks had undergone that project in days, they will start paying CBN principal and interest – that is how CBN makes it own income.
“The SLF is not meant to finance banks’ foreign exchange request. Banks are supposed to request foreign exchange on behalf of their customers but if banks are borrowing from CBN for themselves through the SLF, then that might lead to round tripping.
“With the increased borrowing in SLF, I want to think it is time CBN organized a transparent and competitive foreign exchange market where the true state of Naira will be determined.
“The CBN is still doing the allocation which means Nigerian economy is yet to have a fair competitive market- it is the duty of the market forces to determine the price based on supply and demand.
“The CBN weekly allocation of foreign exchange is unfair. The market is not competitive. CBN still allocates foreign exchange to Bureau de Change (BDC) operators in a country manufacturers need foreign exchange allocation,” he explained.