Amid a rising liquidity crunch, banks operating in Nigeria borrowed a whopping sum of N4.5tn from the Central Bank of Nigeria in July, an increase of 27 per cent Month-on-Month from N3.6tn borrowed in June 2022.
Banks use Standing Lending Facility and Repo lending to access short-term lending from the apex bank. While the CBN lends money to banks through the SLF at an interest rate of 100 basis points above the Monetary Policy Rate currently at 14 per cent, it also lends money to banks through Repurchase Arrangement (Repo).
Repos are usually considered less risky due to their short-term maturity status and the backing of the government. In the month under review, the CBN financial data shows that banks borrowing through the SLF dropped by 24.37 per cent MoM to N1.46tn in July, from N1.93tn in June, while borrowing through Repo arrangement rose sharply in July by 86.1 per cent MoM to N3.07tn from N1.65tn in June 2022.
Experts have however expressed that the money market is getting tighter due to macro-economy headwinds. The Vice President, Highcap Securities Limited, Mr. David Adnori, expressed uncertainty over the nation’s economy, saying the hike in interest rate and rising inflation rates had forced many banks to the CBN lending window especially in July. He said, “Banks without liquidity might have trigger the high borrowing from the CBN. Besides, economic uncertainty has started to surface following the 2023 general elections.”
Also speaking, the Chief Executive Officer, Cowry Asset Management Limited, Johnson Chukwu, linked the development to low liquidity on the part of the banks.
He said, “The level of involvement of FAAC was not quite high in that month, there was no major inflow into the financial system and in the same month of July, there was a major outflow including the N180bn Dangote loan. So those outflows impacted pressures on the bank’s system liquidity that compelled banks to increase their borrowing from the lending facility.”
Meanwhile, further findings showed that banks during the first seven months of 2022 borrowed N13.36tn, representing a decline of 24 per cent from N17.9tn borrowed in the prior seven months of 2021.c