CBN borrowing to banks increases by 466% to N268.3bn
…Manufacturers’ debt to banks hit N6.98 trillion in June – CBN
…Expert raises alarm over banks’ liquidity
By Seun Ibiyemi
Banks’ borrowings from the Standing Lending Facility (SLF) of the Central Bank of Nigeria (CBN) increased year-on-year (YoY) by 466 percent to N268.3 billion as at end of October 2023 from N47.35 billion as at October 2022 reflecting the increase in currency outside banks.
The apex bank has two short-term lending windows for banks and merchant banks namely, SLF and Repurchase (Repo) lending.
CBN Money and Credit Statistics data showed that currency outside banks stood at N2.35 trillion as at September 2023 having risen by 195 percent since January 2023 when it declined to N792.18 billion due to the redesign of the N200, N500 and N1000 notes.
However, further details of the statistics from the CBN Financial data also showed that banks’ deposits in the CBN Standing Deposit Facility (SDF) increased YoY by 465 percent to N5.29 trillion as at October ending of 2023 from N935 billion as at October 2022
Following the increase in percentage in Banks borrowings from the standing lending facility (SLF) of the Central Bank of Nigeria (CBN), stakeholders in the financial sector have raised alarm over banks liquidity.
The Chief Executive Officer, Centre for the Promotion of Private Enterprise (CPPE), Dr. Muda Yusuf in a telephone chat with Nigerian NewsDirect said that “We need to do a proper stress test for the banks because if there is this kind of big jump on lending from CBN, there will be an indication of some challenges in the financial system itself.”
Dr. Muda said the economy has not been very stable or very healthy in the last two months, so it is possible that might be the cause.
He added that the banks too are also facing some challenges in terms of liquidity.
“It is when banks have liquidity issues that they go to the CBN to breach the gaps that exist in their systems. Although most of those facilities are short term, it is a reflection of some underlined challenges in relating to liquidity in the banking systems.
“The implication on the economy is that the bank supports the economy, so we need to be sure that the banks are standing on a very firm ground. So we need to step up supervision to ensure that our banks are not at risk for failure,” he said.
Meanwhile, the CBN’s foreign exchange sales to Nigerian Foreign Exchange Market (NAFEM), Small and Medium Enterprise (SMEs) and Invisibles declined YoY by 121 percent to $2.92 billion in the second quarter of 2023 (Q2’23) from $3.7 billion in Q2’22.
This was contained in the CBN quarterly statistical bulletin for June 2023.
Breakdown of foreign exchange sales in the months comprising Q2’23 showed that the apex bank sold $1.2 billion in April.
In May, foreign exchange sales fell by 15.8 percent to $736.98 million and increased by 27 percent to $939.39 million in June.
Also, the CBN reported that the debt owed by manufacturers to banks in the country has risen from N5.56 trillion in January 2023 to N6.98 trillion by June 2023.
According to the CBN’s Sectoral Analysis of Deposit Money Banks’ Credit report, manufacturers additionally borrowed a substantial N1.42 trillion between January and June 2023.
Banks’ credit to the sector within one year, increased from N4.53 trillion in June 2022 to N6.98 trillion in June of the current year.
A month-by-month analysis of lending reveals the following figures: N5.56 trillion in January, N5.57 trillion in February, N5.65 trillion in March, N5.81 trillion in April, N5.70 trillion in May, and N6.98 trillion in June 2023.
It is worth noting that the Monetary Policy Committee of the central bank raised the benchmark interest rate from 11.5 percent earlier in the year to 18.75 percent in June.
This was part of a series of eight consecutive rate hikes aimed at curbing inflation and reducing liquidity in the economy.
With the mounting debt, stakeholders in the manufacturing sector have consistently argued that the current double-digit lending rate is unfavourable, as it directly impacts the cost of production and the competitiveness of the sector.
The report stated, “The projection for the Net Domestic Credit, though on the upward trajectory, reflects the expected credit dynamics in the economy. Credit to the Government is expected to decrease over the period due to the expected significant reduction in fiscal deficits arising from the removal of fuel subsidy. On the other hand, credit to the private sector is expected to increase owing to the government’s plan to achieve a higher level of growth driven by the private sector.”
On the other hand, borrowing by farmers to grow agricultural produce declined to N1.83 trillion in June from N1.85 trillion recorded in January, suggesting a reduction in loan appetite.
