By 
The Central Bank of Nigeria (CBN) has taken action against commercial banks that did not meet its 65% loan-to-deposit target by imposing additional debits. According to a report from an investment banker, the CBN has deducted an extra N250 billion from these banks.
The CBN had recently signaled its intention to reverse cash reserve (CRR) ratio normalization after observing a decrease in lending to the real sector of the economy. Amidst a series of reforms, the CBN has now opted to resume imposing debits on deposit money banks as part of its efforts to restore the use of the CRR as a monetary policy tool.
The reduced willingness of banks to create credit has been influenced by a rise in stage 2 loans due to economic pressures within the local economy. The CBN’s naira reforms have adversely affected the financial performance of certain banks, resulting in significant FX losses across various sectors. While some banks have recorded revaluation gains, others have seen their income impacted by the devaluation of the naira.
Analysts predict that economic reforms will have short to medium-term consequences on the ability of some corporate clients to repay their loans in 2023, primarily due to negative events that have transpired during the year, including FX and subsidy reforms.
The imposition of debits on Nigerian banks has led to decreased investor interest in stocks. However, following the CBN’s recent normalization measures, demand for banking stocks has surged, leading to the Nigerian Exchange reevaluating the banking index with expectations of improved financial services regulation.
In their respective market updates, analysts have informed investors that money market rates have declined due to an influx of liquidity in the financial system. Short-term benchmark rates have dropped to single-digit lows.
Cordros Capital reported a significant 22.8% decline in the overnight (OVN) rate to 2.4%, attributed to N591.62 billion in inflows from FAAC disbursements hitting the financial system. Additionally, the market saw OMO maturities totaling N40.00 billion. These inflows were sufficient to offset the week’s CRR debits of approximately N250.00 billion, as per Cordros Capital’s weekend update. Analysts noted that the average system liquidity settled at a net long position of N286.55 billion, compared to a net short position of N203.48 billion in the previous week.
“Barring any significant inflows into the financial system to sustain the current liquidity levels next week, we believe the overnight lending rate will trend upward from current levels,” analysts predicted.
Comments