Banks deposit with CBN drops by 38% in 2020
By Kayode Tokede
Banks and Merchant Banks operating in Nigeria deposit with Central Bank of Nigeria (CBN) dropped by 38 per cent to N7.25trillion in 2020, our correspondent can report.
However, in 2019, banks and merchant banks deposited N11.66trillion with CBN amid the 65 per cent Loan-to-Deposit (LDR) policy.
Using the Standing Deposit Facility (SDF), banks and merchants banks last year were depositing with the apex bank as lending to real sector was challenging caused by COVID-19 and dwindling global oil prices.
The breakdown revealed that N625.76billion was deposited in January but it dropped to N520.28billion in February.
The deposit by banks and merchant banks dropped further in March to N346.4billion and increased to N5591.14billion in April.
For May and June, a total of N596.5billion and N442.59billion was deposited by banks and merchant banks with CBN respectively.
In July, our correspondent gathered that in July, N421.57 billion was deposited while in August, N605.65 billion was deposited with CBN.
From all indications, banks and merchant banks deposit with CBN increased significantly in the last quarter of 2020.
The data from CBN disclosed that N833.8billion was deposited in September and N662.18billion in October. Between November and December, 2020, N839.42 billion and N834.95billion was deposited by banks and merchant banks to CBN respectively.
The Monetary Policy Committee (MPC) of the CBN reduced its Monetary Policy Rate (MPR) from 13.5 per cent it opened in 2020 to 11.5 per cent in November 24, 2020.
Banks and merchant banks continually accessed the standing facilities window to square-up positions in 2020Q3.
The apex bank in its economic report for third quarter of 2020 said, “The trend at the CBN standing facilities window indicated more activities at the SDF window, compared to the Standing Lending Facility (SLF) window, owing to liquidity surfeit in the banking system.
“Following the MPC meeting of September 2020, applicable rates for the SLF and SDF changed from 14.5 per cent and 7.5 per cent to 12.5 per cent and 4.5 per cent, respectively.
“Total SDF granted, during the review quarter, was N1.77 trillion with a daily average of N27.55 billion in 61 transaction days from July 1, 2020 to September 25, 2020.
“Daily request ranged from N0.73 billion to N50.00 billion. Cost incurred on SDF in the quarter stood at N0.51 billion.”
Analysts said all Tier-II and weak Tier-I banks increased deposit with CBN following the decline in Monetary Policy Rate (MPR) in a move to boost liquidity to drive daily business activities.
They also expressed that the keeping funds with CBN is safe, stressing that the business environment is challenging to lend amid meeting the 65 per cent target.
The head of research, PanAfrican Caipital Holdings Ltd, Mr. Moses Ojo explained to our correspondent that banks were protecting their funds as the business environment was not safe to grant loans to real sector.
According to him, “As a result, banks needed the money to lend to the real sector and meet up the benchmark. Before now, banks were facing Cash Reserve Ratio (CRR) of 22.5 per cent. If you combine CRR and 65 per cent LDR, there is no way SDL of CBN will not reduce in 2020.”
He said banks not depositing with CBN translates into more lending to the real sector and growth in the nation’s economy.
He said, “There will be more funds going into agriculture, manufacturing, Small and Medium Enterprises (SMEs), Oil & Gas, among others which is expected to drive growth in real sector.”
The Managing Director, Cowry Asset Management Limited, Mr. Johnson Chukwu, said the CBN’s policy forced banks not to deposit on its SDL last year.
He noted banks had to comply with CBN directive and lend to real sector, which translates to improve lending in the banking sector.
He maintained that the day-to-day deposit with CBN, of course, was expected to drop as banks were lending to real sector.
A circular by CBN to all banks had noted that “the remunerable daily placements by banks at the SDF shall not exceed N2billion.”
According to circular signed by Director, Financial Markets Department, Angela Sere- Ejembi, stated that the SDF deposit of N2 billion shall be remunerated at the interest rate prescribed by the Monetary Policy Committee from time to time.
She added that, “Any deposit by a bank in excess of N2 billion shall not be remunerated. The provisions of this circular take effect from July 11, 2019.”
Analysts explained that the guideline on SDF was CBN’s aims to improve market liquidity and, subsequently, encourage deposit money banks to increase lending to the productive sector of the economy.
