Banks rely heavily on CBN for funding as liquidity crunch looms
By Sodiq Adelakun
Banks in Nigeria are increasingly relying on the Central Bank of Nigeria (CBN) for liquidity, as evidenced by a significant increase in borrowing from the apex bank’s Standing Lending Facility (SLF).
In November 2023, borrowing from the SLF rose by 559 percent month-on-month to N376.64 billion, up from N57.14 billion in October.
This trend is reflected in the CBN’s financial data for November, which also showed a decline in bank deposits in the Standing Deposit Facility (SDF) by 18 percent MoM to N2.4 trillion from N2.94 trillion in October.
The CBN offers two short-term lending windows for banks and merchant banks, namely the SLF and Repurchase (Repo) lending.
The increase in borrowing from the SLF suggests that banks are facing liquidity challenges and are turning to the CBN for support.
Meanwhile, banks’ borrowing from the apex bank has been fluctuating this year, but the increase in banks borrowings from the CBN SLF indicates a continuous decline in banking system liquidity.
The decline in banks liquidity can also be traced to low cash deposit by bank customers which has resulted in cash scarcity in banks.
Recently, CBN attributed the reported cases of cash scarcity in some major cities across the country to the hoarding of bank notes by some persons it didn’t identify.
The Acting Director of Corporate Communications at the Central Bank of Nigeria (CBN), Mrs. Hakama Sidi Ali, recently provided an explanation in Abuja regarding the increase in currency in circulation.
As of February 2023, the amount was recorded at N1 trillion, but it has now surged to over N3.4 trillion in just a few days. In response to the shortage of cash across the country, the CBN has decided to temporarily suspend charges on cash deposits that exceed the regulatory limits.
Individuals will not be charged for deposits above N500,000, while corporate account holders will not face charges for deposits exceeding N3 million. This measure will remain in effect until April 30th, 2024.
