The recent data from the Central Bank of Nigeria (CBN) reveals a significant increase in borrowing by Deposit Money Banks (DMBs) from the CBN through the Standing Lending Facility (SLF).
In the first five days of July 2024 alone, DMBs borrowed a record-high of N5.38 trillion.
This marks a 245% increase from the N1.56 trillion borrowed in the same period of June 2024 and a 202% rise from the N1.78 trillion borrowed in the first week of July 2023.
The SLF is a mechanism through which the CBN provides liquidity to banks, enabling them to meet short-term funding needs such as covering withdrawals and funding loans.
The incresse in borrowing can be attributed to liquidity constraints faced by banks amid the CBN’s tightening of monetary policy, including raising the Monetary Policy Rate (MPR) to 26.25% in May 2024 from 18.75% in July 2023.
This policy adjustment aims to combat high inflation, which stood at 33.95% as of May 2024.
Furthermore, the CBN has engaged in substantial Open Market Operations (OMO) to manage liquidity and support the naira.
These measures, coupled with an increase in the Cash Reserve Ratio (CRR) for banks, have contributed to a tightening of liquidity in the banking sector.
Consequently, banks have increasingly turned to the CBN as a lender of last resort to bolster their liquidity positions.
In contrast to borrowing, banks deposited N172.17 billion in the Standing Deposit Facility (SDF) during the first week of July 2024, down from N232.18 billion in the same period last year.
Overall, while the high borrowing figures from the CBN may seem significant, they are relatively small compared to the total assets of Nigerian banks.
Source: Business Day