In May 2023, Deposit Money Banks (DMBs) in Nigeria borrowed significantly less from the Central Bank of Nigeria (CBN), as the Standing Lending Facility (SLF) declined by 82.15 percent to N714.10 billion from N4.11 trillion in the preceding month. This decrease was attributed to increased liquidity in the banking system, influenced by injections via the Federation Account Allocation Committee (FAAC) and maturities of Nigerian Treasury Bills (NTBs) and CBN bills. Conversely, deposits increased to N450.25 billion, reflecting improved liquidity in the banking sector.
Key Points:
- DMBs’ borrowing from the Central Bank (SLF) decreased by 82.15 percent to N714. 10 billion in May 2023 from N4.11 trillion in the previous month.
- Average daily borrowing requests dropped to N35.70 billion from N256.66 billion in April.
- The decline in borrowing was attributed to increased liquidity in the banking system, influenced by injections via the FAAC, NTBs, and CBN bills maturities.
- Deposits increased to N450.25 billion, with an average daily placement of N21.44 billion, compared to N224.29 billion with an average daily placement of N14. 02 billion in the preceding month.
- The applicable rates for the standing deposit facility and standing lending facility increased by 50 basis points to 11.50 and 19.50 percent, respectively, in May.
- Nigeria’s Central Bank has maintained a hawkish monetary policy stance since May 2022 to address inflation, with the benchmark interest rate raised to 18.75 percent in July 2023.
- Open Market Operation (OMO) auctions were not conducted in May, but maturing bills amounting to N85.00 billion were redeemed.
- Nigerian Treasury Bills (NTBs) and FGN Bonds markets remained active, with increased subscriptions for longer-term securities (364 days).
- Short-term interest rates trended downward due to increased banking system liquidity. The average interbank and Open Buy Back (OBB) rates declined.
- The direction of lending rates was mixed, with the prime lending rate showing a marginal increase while the maximum lending rate declined modestly.
Analysis: The decline in borrowing by Nigerian banks from the Central Bank signals improved liquidity in the banking system, which can positively impact lending activities and overall economic growth. The report also underscores the Central Bank’s sustained hawkish monetary policy stance to combat inflation. Adjustments in interest rates and liquidity management efforts are aimed at stabilizing the economy. Monitoring the effects of these policies on inflation, lending, and economic activity will be crucial in the coming months.
