Nigeria: Banks’ Borrowings from CBN Surge by 140% to N10.35 Trillion

The borrowing trend among banks in Nigeria has shown a significant increase, as their reliance on the Central Bank of Nigeria (CBN) intensifies. Data obtained from the CBN reveals that during the first half of 2023 (H1’23), banks borrowed N10.35 trillion from the CBN’s Standing Lending Facility (SLF), marking a staggering 140% year-on-year (YoY) rise compared to N4.3 trillion borrowed in the corresponding period of 2022 (H1’22).

The data further indicates that the borrowing in the first quarter of the year, totaling N4.95 trillion, already surpassed the borrowing for the entire first half of 2022. Subsequently, the borrowing increased by an additional 5.05% to reach N5.4 trillion in the second quarter of 2023 (Q2’23).

Conversely, the data reveals a 2.0% decline in banks’ deposits in the CBN’s Standing Deposit Facility (SDF) during Q2’23, decreasing to N898.25 billion from N1.36 trillion in Q1’23. However, the combined effect of both quarters in H1’23 led to a 34% increase in banks’ SDF balances with the CBN.

The rise in banks’ borrowings from the SLF reflects the continuous growth in currency outside banks and currency in circulation (CIC) within the economy. The CBN’s measures to redesign currency between Q4’22 and Q1’23 had initially resulted in increased liquidity within banks, accompanied by a significant decline in CIC. However, the suspension of this policy in Q1’23 caused a reversal in liquidity movement.

Notably, in Communique No. 148 of the 291st Meeting of the Monetary Policy Committee (MPC) held in May 2023, Mrs. Aishah Ahmad, an MPC member, stated that the soundness indicators of the banking industry remained strong as of April 2023. Key indicators included a capital adequacy ratio of 12.8%, a non-performing loans ratio of 4.4% (down from 5.3% in April 2022), and a liquidity ratio of 45.3% (above the minimum requirement of 30.0%). Additionally, credit to the real sector continued to grow.

Mrs. Ahmad emphasized the importance of building adequate capital buffers and highlighted the ongoing implementation of the Basel III capital standards, which prescribe additional capital buffers, as relevant measures in this regard.