Banks Leverage SDF Gains, Deposit N902.66bn with CBN as Lending to Real Sector Wilts - THISDAY
JANUARY 20, 2024
It has emerged that Nigerian banks in the first eight days on 2024, deposited a whooping N902.66billion with the Central Bank of Nigeria (CBN), rather than lend to the real sector of the economy.
The banks, according to the CBN “financial data”, however, borrowed an estimated N615.47 billion in the first eight days of 2024 in a nid to meet their daily business obligations.
THIISDAY gathered that banks in the first eight days of 2023 had deposited and borrowed N182.8 billion and N359.88 billion from the CBN, respectively.
Banks deposit cash with the apex bank using the Standing Deposit Facility window (SDF), the banks also access funds from the apex bank using the Standing Lending Facility (SLF) window.
A SDF is an overnight deposit facility that allows banks to park excess liquidity (money) to CBN and earn interest.
The applicable interest rate on SDF moved to 15.75 per cent at an asymmetric corridor of +100/-300 basis points around the 18.75 per cent Monetary Policy Rate (MPR) in July 2023.
The Monetary Policy Committee of the CBN unanimously narrowed the asymmetric corridor from +100/-700 to +100/-300 basis points around the MPR.
Banks deposit with CBN outshined borrowing in early 2024 on the backdrop of CBN removal of cap on the remunerable policy, among others.
With the removal of the limit, analysts expressed that, they expect liquidity in the money market to remain tight as banks leverage interest paid on SDF as well as the other liquidity mopping measures of the apex bank
Recently, the CBN governor, Mr. Olayemi Cardoso disclosed that the CBN removed the cap on the remunerable SDF to increase activity in the SDF window and manage liquidity.
The CBN, while announcing the guideline stated, “With reference to the circular to all banks and discount houses, Re: Guidelines on accessing the CBN Standing Deposit Facility, Ref: FMD/DIR/GEN/CIR/05/020 and dated November 6, 2014, after further review, the remunerable daily placements by banks at the SDF shall not exceed N2billion.
“The SDF deposit of N2billion shall be remunerated at the interest rate prescribed by the Monetary Policy Committee from time to time. Any deposit by a bank in excess of N2 billion shall not be remunerated. The provisions of this circular took effect on July 11, 2019.”
Following the rush to take advantage of the window, the banks in a single day, deposited N352.47billion.
THISDAY investigation revealed banks deposit through the SDF in 2023 witnessed significant patronage as banks deposit reached highest peak of about N2.41triillion in November 2023.
However, the CBN has over the years maintained that strong patronage at the SDF confirms healthier liquidity in the banking system.
CBN had maintained that the strong patronage at the SDF confirmed healthier liquidity in the banking system, stressing that banks were in search of better yields.
The CEO, Wyoming Capital & Partners, Mr. Tajudeen Olayinka, noted that the surge in banks deposit with CBN to uncurtaining in the business environment over rising insecurity, among others this year.
He stated that, “The most significant factor is the increasing level of threat in the environment of business in Nigeria, arising from: insecurity, supply chain problems, rising inflation and poor purchasing power, low level of productivity, rising unemployment, liquidity overhang and paucity of risk-free financial instruments.”
He added that, “As a result, most banks prefer to be debited by CBN for running short of LDR limit, as against extending credit to businesses that are finding it difficult to survive. It is all about managing risk.”
However, banks are also borrowing from the central Bank. Unconfirmed reports said banks increase borrowing might be due to the CBN’s mopping up of excess cash circulation to rein in inflation.
Commenting on banks borrowing from CBN, a Financial Expert and Vice President Highcap Securities, Mr. David Adnori, said, “The development points to lack of liquidity on the part of banks. Monetary policy has been tightening and this has led to low liquidity. It is cheaper for banks to borrow from the CBN. This development is not positive but negative. We cannot continue to tighten because it will reflect of economic growth.”
The Chief operating officer of InvestData Consulting Limited, Mr. Ambrose Omordion said, “The development points to a lack of liquidity on the part of banks. Monetary policy has been tightening, and this has led to low liquidity. It is cheaper for banks to borrow from CBN. This development is not positive but negative. We cannot continue to tighten because it will reflect economic growth.”