Banks’ Borrowing from CBN Decline by 42% in H1 on MPR Hike, Others

Banks borrowings from the Central Bank of Nigeria (CBN) declined by 42 per cent in the first half of 2022 compared to the previous year following the increase in Monetary Policy Rate (MPR), improved business activities post-covid-19 and others factors, financial data released by the CBN has revealed. 

CBN Governor

According to the data, Nigerian banks as at June 2022 borrowed N3.58 trillion from the CBN to meet their short-term liquidity needs.

The CBN has a Standing Lending Facility (SLF) and Repurchase (Repo) short-term lending windows for commercial and merchant banks to access needed liquidity whenever there is shortage.   

Banks access funds from the CBN through the SLF at an interest rate of 100 basis points (bpts) above the Monetary Policy Rate.

SLF is a line of short-term credit available for commercial banks to draw on when they need to meet immediate short-term withdrawals from their customers, while the Repo arrangement involves the purchase of banks’ securities with the agreement to sell back at a specific date and usually for a higher price. 

The CBN data showed that banks’ borrowing through SLF and Repo stood at N1.93 trillion and N1.65 trillion as at June 2022, respectively. 

When compared to June of 2021, the SLF and Repo borrowing by banks was N612.9billion and N162.57billion, respectively.  

According to the CBN data, banks in H1 2022 have borrowed a sum of N19.1trillion through the SLF and Repo arrangement from N15.79 trillion in H1 2021. 

Analysts stated that the improved business activities post-covid-19 paved the way for banks and merchant banks to halt borrowing from the CBN.

According to them, banks are taking caution to lend to real sector as the country is preparing for the 2023 general elections.

Speaking with THISDAY, Head, Financial Institutions Ratings at Agusto & Co, Mr. Ayokunle Olubunmi noted that banks were able to increase their deposits by revising their interest rates to its customers. 

He said: “The increase in MPR helped banks were able to increase your deposit rates. And with the increase in deposits they were able to attract more funds from customers. So that was why some of them reduce thier activities in the inter bank window.”

On his part, Vice President, Highcap Securities Limited, Mr. David Adnori said uncertainty in the nation’s economy forced banks and merchant banks to shun borrowing from CBN.

According to him: “Banks and merchant banks have excess liquidity and might not need to borrow from CBN. Besides, economic uncertainty has started to surface following the 2023 general elections.”

The CBN in its recent economic report disclosed that transactions at the SLF decreased by 24.69 per cent to N255.75 billion, from N339.59 billion in January 2022.

Specifically, in May 2021, the net average daily bank drawings from the CBN were about N222.8 billion compared to N115 billion in the prior month of April 2020.