Nigerian Banks’ Borrowing from Central Bank Drops Sharply in May 2023

Deposit Money Banks (DMBs) in Nigeria borrowed significantly less from the Central Bank of Nigeria (CBN) in May 2023, with the Standing Lending Facility (SLF) declining by 82.15 percent to N714.10 billion from N4.11 trillion in the previous 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 standing deposit facility and standing lending facility rates were 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.

Analysis: The significant drop in borrowing by Nigerian banks from the Central Bank indicates improved liquidity in the banking system, which may have positive implications for lending activities and overall economic growth. The report also highlights the CBN’s continued hawkish monetary policy stance aimed at curbing inflation. The adjustments in interest rates and the focus on liquidity management reflect efforts to stabilize the economy. Monitoring the impact of these policies on inflation, lending, and economic activity will be crucial in the coming months.