CBN loans to Banks drop in 2022 as need for short term cash wanes

Deposit Money Banks (DMBs) and Merchant Banks borrowing from the Central Bank of Nigeria (CBN)’s discount window, otherwise known as the Standing Lending Facility (SLF) dropped to N11.01 trillion in 2022, representing a decline of 15 per cent from N13.01 trillion borrowed the previous year.

Analysts say, this implies slowdown in the level of business activities as the need for short term cash for daily transactions waned.

DMBs and merchant banks through the SLF access short-term liquidity from the CBN for their daily business operations.

The CBN lends money to DMBs and merchant banks through the SLF at an interest rate of 100 basis points (bpts) above the Monetary Policy Rate (MPR) of 16.5 per cent.

Finance experts attribute the decline in DMBs and merchant banks’ borrowing to tight liquidity conditions in the banking system.

According to data released by the CBN, DMBs and merchant banks in 2022 borrowed N313.48 billion, and in February, it dropped to N186.48 billion.

CBN in its economic report for January 2022 said, “Total SLF contracted considerably by 52.4 per cent to N338.40 billion from N711.54 billion in December 2021, a fallout of the improved banking system liquidity in the period.”

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In March, SLF by DMBs and merchant banks increased to N377.13 billion and in April, it moved to N612.43billion, representing an increase of 62.39 per cent.

However, for the month of May, it increased to N897.05 billion and further increased to N1.93 trillion in June, a month the CBN hiked its MPR to 13 per cent from 11.5 per cent.

The governor of CBN, Godwin Emefiele had said the money market rates oscillated within and outside the Standing Facilities Corridor (SFC) in May, reflecting the prevailing liquidity conditions in the banking system.

The financial data also revealed that SLF in July, it dropped to N1.46 trillion and in August, it dropped sharply to N1.19 trillion.

CBN in its financial data also revealed that SLF by DMBs and merchant banks dropped to N836.5 billion in September.

Vice President, Highcap Securities Limited, 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.”

In his reaction, the Chief Operating Officer of InvestData Consulting Limited, Mr. Ambrose Omordion stated that DMBs and merchant banks in 2021 had borrowed enough funds from the CBN to meet their daily obligations.