Commercial banks cut borrowing from CBN by 78%

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By Kayode Tokede

Commercial banks reduced borrowing from Central Bank of Nigeria (CBN) by N11.4 trillion in 2018 as against N51.73 trillion borrowed in 2017, Nigerian NewsDirect can report.

The data gathered from the CBN website did not mention the commercial banks involved but there are strong indications that the funds were accessed mostly by weak Tier-2 and Tier-3 banks operating in the country.

Findings revealed that weak banks, Diamond Bank Plc, Unity Bank Plc, among others repeatedly accessed the Standing Lender Facility (SLF) to square-up their liquidity positions for a certain period.

An applicable rate for SLF is 16 per cent in the review period and the rates are anchored on the Monetary Policy Rate (MPR).

The trend of activities at the discount window, remained the same as request for SLF in 2018 was more dominant than Standing Deposit Facility (SDF).

The data gathered from the CBN website, revealed that banks borrowing from the apex bank soar in December with maximum and minimum borrowing of about N268.6 billion and N27.4 billion respectively.

Further findings revealed that, Broad Money, money Supply which includes a wide scope for the definition of money – including both notes and coins, but also more illiquid forms of money increased from  N23.96 trillion in January 2018  to N25.7 trillion as at October 2018.

The above implies that, there was more liquidity in the system for banks to operate with instead of borrowing from CBN which on a long run forced the CBN to mop-up liquidity towards the end of 2018.

Nigerian NewsDirect gathered from CBN that an accumulative N2.08 trillion worth of Open Market Operation (OMO) was sold in December 2018.

The apex bank in its 2017 financial year results said, “the request for the SLF reduced in November and December, due to some level of monetary easing by the Bank, as OMO auction reduced, drastically. Consequently, the average monthly request for SLF was N216.34 billion, given the 246 transaction days within the period. The average monthly interest payment was N159.96 million. In the previous year, the average monthly request for SLF was N130.47 billion, resulting in average monthly interest payment of N94.76 million.”

The Managing Director, Highcap Securities Limited, Mr. David Adnori, said, “when banks go to 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. Banks with liquidity challenges are often seen more on the CBN SLF window than others.

“When banks had undergone that project in days, they will start paying CBN principal and interest – that is how CBN makes it own income.”

Professor of finance at Nasarawa State University, Prof. Uche Uwaleke said, the Tier-2 and Tier -3 with liquidity challenges are always borrowing from CBN to their short time obligations.

“Borrowing from CBN is not abnormal but when it turns into a system by a particular bank which is when it calls for worry.

“When a bank is always knocking at CBN’s SLF, it triggers alarm on the part of CBN. That is one of the red flag that CBN uses to know if a bank is having challenges.”

On reduced borrowing in 2018, he noted that Nigerian banks are getting stronger as there was no need to borrow from CBN to finance short term projects.

How, the Immediate past President Chartered Institute of Bankers of Nigeria ( CIBN) Prof Segun Ajibola in his reaction to NewsDirect enquiry explained that commercial banks cut borrowing as a result of the high  Monetary Policy Rate of 14%. According to him, borrowing  from the CBN window is a bit expensive compared with average rate of less than 10% payable for deposits in 2018. “Also, lending activities of banks nosedived in 2018, causing reduction in the urge for funding credit by the banks,” he noted.

Prof Ajibola explained further that  with the new governance principles taking root in banks, they now approach lending business with utmost caution. He added that quite  a number of intervention funds by the CBN were opened to banks to finance agriculture as well as Small and medium enterprises (SMEs) in 2018 thereby reducing the need for alternative funding sources including CBN window. “Some banks also relied on foreign currency funds from offshore banks and  investors among  in 2018 thus reducing the demand for local funds,” he added.

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