Banks, others intensify borrowing from CBN amid liquidity challenges
…borrowing increased by 183% in six months
By Kayode Tokede
Banks and merchant banks have intensified borrowing from Central Bank of Nigeria (CBN) amid liquidity challenging facing the nation’s economy, Nigerian NewsDirect can report.
Our correspondent also gathered that the total ease of COVID-19 lockdown eased movement, leading to banks and merchant banks aggressive borrowing from the apex bank to lend to real sector.
According to the apex bank financial data, these banks and merchant banks through the Standing Lending Facility (SLF) between January and June of 2021 borrowed N9.56trillion as against N3.38trillion borrowed in the months under review, an increase of 183 per cent.
From the data collected from the CBN website, banks and merchant banks aggressively borrowed from the CBN through the SLF window to square-up their position this year.
The trend at the CBN’s SLF window showed more patronage while the Standing Deposit Facility (SDF) recorded decline as commercial banks thrive to meet the 65 per cent Loan to Deposit Ratio (LDR) policy.
SLF simply means commercial banks accessibility to funds from the CBN to carry out its day-to-day business activities while SDF means commercial banks day-to-day deposit with the apex bank.
However, the Monetary Policy Committee (MPC) in March 26, 2019 voted to reduce Monetary Policy Rate (MPR) to 11.5 per cent, applicable to SLF interest rate of 13.50 per cent.
Our correspondent gathered that banks and merchants in prior year reduced borrowing from the apex bank amid the COVID-19 lockdown as they focused more on LDR deadline which mandates them to give soft credit to key sectors in the nation’s economy.
Analysts who spoke with Nigerian NewsDirect expressed that weak deposit from banks customers led to increasing borrowing from the CBN, stressing that economy factors also contributed.
They expressed that the opening up of the nation’s economy in 2021 impacted on increas in banks and merchant banks lending to real sector, part of the CBN’s objectives to boost economy growth and drive credit access to real sector.
According to financial experts, although the data revealed that banks borrowed more funds from the regulator in the first six months of 2021, compared to 2020, most of those borrowings appear to have come from small and mid-sized banks experiencing liquidity problems
A Chief Finance Officer of a Tier-2 bank in the country expressed that borrowing recently as banks and merchant banks cover temporarily funding gaps.
He noted that the CBN has also increased its Cash Reserve Ratio (CRR) debits.
Under CRR, the banks have to hold a certain minimum amount of deposit as reserves with the CBN.
Top bank executives explained to our correspondent that liquidity problems with some banks, especially a few of the small and mid-sized banks could be traced to loans advanced to some oil and gas as well as power companies which became bad.
The Chief Executive Officer of one of the banks, who spoke to our correspondents, said, “The liquidity problems with the banks can be partly traced to legacy loans that came as a result of the bank lending to oil and gas sector. Up till date, the balance sheet of some of the banks still have these loans.
“The CBN has given them some kind of forbearance but the challenge is that the loans impacted the banks badly.
“Banks gave loans to power firms during the privatisation of the power sector.
“Government encouraged banks to give the loans but those loans later had problems. Then you had the recession that hit the country, the first in 25 years. That affected the banking sector. The big banks are surviving because of their size.”
In a chat with Nigerian NewsDirect on Sunday, the Managing Director, Highcap Securities Limited, Mr. David Adnori said that growing demand for loans from banks and merchant banks is responsible for hike in borrowing from CBN.
According to him, “The opening of the nation’s economy this year aided growth in banks’ borrowing from CBN. The demand for banks loans increased tremendously.
“When demand on bank’s loans increase significantly and banks don’t have depositors’ money to lend, they visit CBN to borrow from the SLF.
“The deposit by bank’s customers is insufficient to meet loans application by customers- reason why banks and merchant banks to access more funds.”
A Nigerian economist and professor, Akpan Ekpo, attributed the significant borrowing by banks and merchant banks to increasing demand of liquidity from customers.
According to him, “The increasing borrowing by banks’ customer is normal and it is meant to rejig the nation’s economy.
“If banks failed to pay back, CBN deals with them through CRR debits.”
He, thus, questioned real sectors banks are lending to.
On this he said, “We need to know if the lending from CBN by banks is going into agriculture, Oil & gas, among others. However, six months is too short to begin to access impact of banks borrowing from CBN.”
Also speaking, Research Analyst, Mr. Abayomi Peters said the 183 per cent increase in SLF is due to liquidity challenges in the nation’s economy.
According to him, “The increase may have been the impact of the prevailing liquidity conditions in the banking sector.”
He explained further that “As we know, the CBN retained its tight stance on monetary policy, in its bid to maintain price stability and put a lid on inflation.
“Most of the lending from the CBN would have gone to tier-II banks and merchant banks as they felt the burden more during the period.”
Analyst at PAC Holdings, Mr. Wole Adeyeye expressed that banks and merchant banks have no other option than to borrow from the CBN to lend to real sector.
In his words, “In the first quarter of 2020, there was lockdown. Since the ease of the lockdown, CBN was working with banks to improve lending to real sector.
“Banks are actually giving out these funds to meet their daily obligation of lending to real sector. The aim of the CBN and banks is to enable people have access to credit facility. It is indirectly CBN’s giving banks this SLF to the people.
“It is like CBN improving productivity in the nation’s economy.”
