Nigeria: Banks’ Borrowing from CBN Drops 76% to N4 Trillion

Banks’ reliance on the Central Bank of Nigeria’s (CBN) Standing Lending Facility (SLF) witnessed a significant decline, dropping by 76.4 percent month-on-month (MoM) to N4.04 trillion in August from N17.12 trillion in July.

According to data released in the CBN’s Financial Report, while borrowing from the SLF plummeted, banks’ deposits in the Standing Deposit Facility (SDF) surged by 270.7 percent MoM, reaching N8.12 trillion in August, up from N2.19 trillion in July.

These contrasting developments suggest that banks are accumulating idle funds, possibly due to reduced lending activities as businesses shy away from borrowing amid rising interest rates. The increase in borrowing costs follows the CBN’s recent hike in the Monetary Policy Rate (MPR).

The CBN’s decision to raise the rates for both the SLF and SDF comes as part of its broader strategy to curb excess liquidity in the banking system and encourage lending to stimulate economic activity. This adjustment was outlined in a circular following the 296th meeting of the Monetary Policy Committee (MPC), where the apex bank altered the Asymmetric Corridor around the MPR from +100/-300 basis points (bps) to +500/-100 bps. The move aims to make it less attractive for banks to hold excess liquidity at the CBN.

As part of this strategy, the CBN raised the SLF rate—which banks use to borrow short-term funds—to 31.75 percent. The SDF rate for deposits up to N3 billion at the CBN was increased to 25.75 percent, while the rate for deposits exceeding N3 billion was set at 19 percent.

These changes underscore the CBN’s ongoing efforts to manage liquidity within the financial system and promote a more active lending environment to support economic growth.