Commercial banks and merchant banks in Nigeria are turning to the Central Bank of Nigeria (CBN) for liquidity, intensifying their borrowing from the apex bank in the first eight months of 2023.
From January to August 2023, these financial institutions borrowed a total of N12.46 trillion from the CBN, a stark increase compared to the N6.96 trillion borrowed in the same period of 2022, marking a 79% rise.
Banks primarily accessed the Standing Lending Facility (SLF) window, a short-term lending option, from the CBN due to the central bank’s tightening monetary policy stance.
In the first half of 2023, commercial banks and merchant banks borrowed N10.25 trillion via the SLF window, reflecting a YoY increase of 138% from N4.3 trillion borrowed during the corresponding period in 2022.
Monthly figures showed fluctuations, with the highest borrowing recorded in April 2023 at N4.47 trillion. This borrowing trend indicates liquidity pressure faced by some banks and raises concerns about the stability of the banking sector.
Experts attribute the increased borrowing to tight monetary policy and lack of liquidity. They note that while this borrowing doesn’t necessarily indicate financial instability, it underscores the need for banking sector recapitalization and a reconsideration of the minimum capital requirements.
As banks rely more on borrowing from the CBN, it could potentially impact economic growth due to reduced liquidity in the system.
Opinion: The increasing reliance of Nigerian banks on borrowing from the Central Bank of Nigeria highlights the liquidity challenges faced by these financial institutions. Tightening monetary policy and low liquidity have driven banks to seek short-term lending options from the apex bank. This trend is a signal that the banking sector might require further capital injection to bolster stability and support lending activities. Striking a balance between monetary tightening and fostering economic growth is essential to ensure the health of both the banking sector and the broader economy.
This article was published by (marketnewsng).