Banks deposit with CBN tumbles by 66.5% to N11.66trn in 2019

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By Kayode tokede

Banks deposit with Central Bank of Nigeria (CBN) dropped by 66.5 per cent to N11.66 trillion in 2019 as against N34.77 trillion reported in 2018, findings by Nigerian NewsDirect has revealed.

This is coming on the heels of banks involved in aggressive lending to the real sector to meet up the 65 per cent Loan to Deposit ratio (LDR) requirement of the apex bank before December 2019.

Banks through the Standing Deposit Facility (SDF) deposit funds with the apex banks at a given interest rate of 8.50 per cent.

SDF is the sum normally kept with the CBN in liquidity surplus conditions, which gives the apex bank a window to intervene in the inter-bank market.

Nigerian NewsDirect gathered that banks and the merchant banks dumped the SDF window of the CBN and rushed to borrow funds from the CBN through the Standing Lending Facility (SLF).

Also, the trend at the CBN’s SLF window showed more patronage while the SDF recorded decline as banks thrive to meet up with the 65 per cent LDR policy.

Nigerian NewsDirect gathered that in the first quarter of 2019, banks deposit with CBN was N3.03trillion and the second quarter of 2019 a total of N4.75 trillion was deposit with the apex bank.

However, in the third and fourth quarters, the figure shrink to N1.94trillion a N1.95 trillion respectively.

Analysts explained to Nigerian NewsDirect that the policy introduced by the CBN on SDF last year discouraged banks deposit.

They explained to Nigerian NewsDirect that guideline on SDF by CBN’s aims to improve market liquidity and, subsequently, encourage deposit money banks to increase lending to the productive sector of the economy.

Managing Director, Enterprise Securities Limited, Mr. Rotim Fakayejo expressed that, “This comes with additional incentive of a weight of 150 per cent to the preferred sectors in the computation of LDR.

He said the impact of the new guideline on SDF would force the banks to carry out their core responsibility of intermediation (the circular capped the preference of banks to keep idle balances at the CBN in the SDF window).

The CBN in last year July directed banks and discount houses operating in the country to limit their daily access to the Central CBN’s SDF to only N2billion or risk not being remunerated.

A CBN Circular to all banks with reference number: FMD/DIR/CON/ONG/12/2019, titled: RE: Guidelines on Accessing the CBN Standing Deposit Facility,” directed that banks shall not exceed the stipulated limit.

By this decision, it then means that banks can seek comfort in other deposit banks if they want to access more than the set N2billion.

The new circular signed by the CBN Director, Financial Markets Department, Dr. Angela Sere-Ejembi, reads in part: “The remunerable daily placements by banks at the SDF shall not exceed N2billion.

“The SDF deposit of N2billion shall be remunerated at the interest rate prescribed by the Monetary Policy Committee from time to time,” and warned that, “Any deposit by a bank in excess of N2billion shall not be remunerated.”

CardinalStone Research had explained that “the recent revision of SDF guidelines is unlikely to drive material credit creation in isolation.

“We, therefore, believe that the apex bank is likely to introduce additional policies to complement the recently issued regulatory measures.”

They explained further that the new measure is also not likely to drive real sector lending, given that banks are still able to redirect excess cash to money market instruments at the secondary market.

“In our view, this factor may have contributed to the bullish sentiment in the T-Bill market in today’s session (average T-bill yields: -100bps to 11.0per cent). Similarly, we believe that the new cap on SDF placements could also force banks to direct some excess funds to interbank placements subject to the level of system liquidity,” analysts at CardinalStone Research added.

However, a group of analysts at ARM research said the CBN has limited top four Tier 1 commercial banks access to its SDF with the policy.

According to them “Notably, during periods of excess liquidity in the banking system and the accompanied depression in interbank rates, the SDF window afforded banks (especially top 4 Tier 1 banks who are perpetual net placers of funds) an avenue for placing excess liquidity in the absence of OMO or Treasury bills auctions and earn an annualized rate of 8.5per cent.

“Notwithstanding, we believe the impact on income for the Top four Tier 1 banks (Guaranty Trust Bank, Zenith Bank, United Bank for Africa (UBA) and FBN holding, will minimal as we expect such funds to be redirected to the Tier 2 banks which had been perpetual net takers at the Standing Lending Facility, albeit at a much lower rate depending on overall market liquidity.

“Although, we do not perceive CBN will be comfortable leaving excess liquidity with the banks, as such could result in speculation at the foreign exchange market, but it is hard to reason borrowing of same funds via OMO and T-Bills at higher rates from same banks.”

They maintained that the CBN has delivered another news to commercial banks, which now comes in the form of a voluntary rejection of excess liquidity deposited by the banks to CBN via the SDF.