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Increased liquidity in the banking sector has continued to raise the lending institutions’ capacity to increase credit to the economy.
The Deposit Money Banks and merchant banks in the country borrowed N1.81tn from the Central Bank of Nigeria in the first quarter of the year. In April, they borrowed N274bn from the apex bank, thereby increasing the amount borrowed to N2.08tn in the first four months of the year, according to data obtained from the CBN.
According to CBN reports, the banks continued to access the standing facilities window to square up their positions. The trend at the CBN standing facilities window showed more frequency at the Standing Lending Facility window, as against the decreased patronage at the Standing Deposit Facility window.
CBN’s first-quarter economic figures showed that applicable rates for the SLF and SDF stood at 15.50 and 8.50 per cent respectively in March. It said the cost incurred on SDF in the first quarter of 2020 stood at N460m.
According to the April monthly economic report of the CBN, the trend at the CBN standing facilities window showed more frequency at the SDF window, as against the decreased patronage at the SLF window due to the excess liquidity in the banking system.
It said applicable rates for the SLF and SDF remained at 15.5 per cent and 8.5 per cent respectively. Total request for the SLF granted in April was N274.65bn, made up of N163.5bn direct SLF and N111.15bn ILF converted to overnight repo.
The daily request ranged from N1.43bn to N94.17bn and averaged N18.31bn in the 15 transaction days from April 1 to 27. Total interest earned at 15.5 percent was N270m, according to the apex bank.
Total SDF granted during the review period was N497.67bn with a daily average of N29.27bn in the 17 transaction days from April 1 to 27.The daily request ranged from N140m to N41.23bn, while the cost incurred on SDF in the month stood at N160m.
However, as more funds were made available to the banks, credit to the economy continued to grow.
The CBN stated in the report that credit to the private sector grew by 6.6 per cent in April, compared with 5.7 per cent in March, driven largely by other depository corporations’ credit, reinforcing the effectiveness of the Loan-to-Deposit ratio policy of the apex bank.
CBN Governor, Godwin Emefiele, at the last Monetary Policy Committee meeting, said data indicated that total gross credit grew by N3.3tn since May 2019 to N18.9tn in June, showing increased lending to manufacturing, consumer credit, general commerce, ICT, and agriculture. He said this illustrated the continued potency of CBN’s Loan to Deposit Ratio policy.
Emefiele said, “Even with an increasingly fragile global macro-financial condition and rising domestic credit, the Nigerian banking sector remained largely resilient with NPLs ratio continuing to moderate from 11.2 per cent in May 2019 to 6.4 per cent in June 2020.
“Yet, I note the imperative of sustained credit flows to the private sector, especially at this critical time when the productive machinery of the economy needs liquidity support to prop domestic supply. To help local firms cushion the consequences of the pandemic, the CBN is working with banks to restructure lending and grant increased forbearance to businesses which require such to survive.
“The CBN will continue its drive to de-risk lending and increase targeted intervention to strategic high impact private sector ventures through effective collaboration of all stakeholders, especially on the backdrop of the imminent economic downturn”. Another member of the MPC, Sanusi Rafindadi, said a report on the banking system stability review showed that despite the challenges posed by the COVID-19 lockdown, the banking system remained sound and resilient.
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