By 
Recent data reveals a growing reliance on the Central Bank of Nigeria (CBN) for liquidity among commercial and merchant banks. Over the past eight months of 2023, banks have increasingly turned to the apex bank for borrowing, potentially indicating a cash shortage within the banking sector.
In the current year, spanning up to August, the combined borrowing of commercial and merchant banks from the CBN reached N12.46 trillion. This stands in stark contrast to the first eight months of 2022, during which the borrowing totaled N6.96 trillion, reflecting a substantial 79% surge.
Banks primarily utilize the Standing Lending Facility (SLF) window to access short-term lending from the CBN, while also depositing funds through the Standing Deposit Facility window (SDF).
The intensified borrowing trend in 2023 is attributed to the CBN’s tightened monetary policy stance. As a result, banks have turned to the SLF window to secure liquidity for their daily operations.
CBN data reveals that during the first half of the year, commercial and merchant banks borrowed N10.25 trillion via the SLF window, marking a substantial 138% increase compared to the same period in 2022, during which N4.3 trillion was borrowed.
An analysis of monthly figures uncovers fluctuations in borrowing patterns. In January, banks borrowed N528.16 billion from the CBN, which decreased to N453.7 billion in February. However, borrowing experienced a significant upswing in March, rising by 776.22% to reach N3.98 trillion, the second-highest amount after the N4.47 trillion recorded in April.
Furthermore, the data indicates that borrowing reached N590.29 billion and N235.06 billion in May and June 2023, respectively. July and August saw borrowing figures of N908.43 billion and N1.3 trillion via the SLF window.
Reflecting on this trend, Dr. Muda Yusuf, a former Director-General of the Lagos Chamber of Commerce and Industry, suggested that this increased borrowing might not necessarily indicate banks’ financial stress. It could be attributed to short-term liquidity pressure. He also emphasized that bank recapitalization is overdue, given that the existing minimum capital requirement of N25 billion is insufficient when adjusted for inflation.
Tajudeen Ibrahim, a financial expert at Chapel Hill Denham, highlighted that the upward borrowing trend signifies a lack of liquidity among banks. Tightening monetary policy has contributed to low liquidity levels. Borrowing from the CBN becomes a more cost-effective solution for banks facing liquidity challenges. However, Ibrahim emphasized the potential negative implications of such a development on economic growth, underscoring the importance of finding a balanced approach.
Comments