Access Bank, Zenith Bank, UBA, Others Increase Borrowing From CBN to Fight Cash Crisis
- Nigerian banks are facing a cash crisis as they have increased their borrowing from the Central Bank of Nigeria (CBN)
- The banks borrowed about N755.65 billion from the apex bank to maintain cash liquidity
- Before the liquidity squeeze resurfaced, CBN had battled high liquidity with plans to curtail the inflationary effect
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There are signs that the banking sector is under some liquidity squeeze as they resort to the Central Bank of Nigeria (CBN) for cash.
Although a few top banks maintain some level of liquidity, reports say the whole money market is already feeling the pressure of low cash supply, affecting transactions in treasury instruments.
Source: UGC
Banks borrowing from CBN increase
Banks’ borrowing from CBN increased by 107%, month-month to N755.64 billion in July
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The apex bank has two short-term lending windows for banks: the Standing Lending Facility (SLF) and the Repurchase arrangement.
Vanguard reports that under the SLF arrangement, CBN lends to commercial banks at interest rates of 100 basis points above the Monetary Policy Rate (MPR), while under the Repurchase arrangement, the banks get funds by pledging or selling their financial assets to CBN with the deal to repurchase them at a specific date but at a higher price.
But the apex bank accepts deposits from banks via its Standing Deposit Facility (SDF) and pays an interest rate of 300 basis points below the Monetary Policy Rate.
Information from the CBN indicates that banks borrowed N755.64 billion in July via the SLF, representing a 107% increase from the N365.06 billion they borrowed in June.
CBN lament excess liquidity causing inflation
However, top banks with enough cash could approach the CBN with deposits, pushing up the sector’s SDF holdings in July by 25% month-on-month to N783.66 billion from N625.66 billion in June.
Before the liquidity squeeze resurfaced, CBN had battled high liquidity with plans to curtail the inflationary effect.
Acting CBN Governor Folashodun Shonubu said the considerable liquidity in the banking system is a significant challenge the CBN faces in trimming the upward trend in the inflation rate.
Accordingly, CBN has consistently raised its MPR, hitting 18.75% at the last MPR meeting.
Shonubi said:
“During this MPC meeting, we discussed inflation and management tools.
“One of the key challenges now is the liquidity overhang, and we need to look at the various tools available to deal with it.
“We referred to that in the Communique. “So in addition to an interest rate hike, we have also come up with various ways to fight the liquidity because we believe that the liquidity surfeit runs, not just across inflation, also but on the exchange rate and other parts of the economy.”
Access Bank, Zenith Bank, Stanbic IBTC, 11 others increase interest rates on savings deposits
Legit.ng report that Nigerian banks have increased interest on deposits following the hike in Money Policy Rates (MPR) by the Central Bank of Nigeria (CBN).
At its last MPR meeting, the CBN raised interest rates by another 25 basis points, the sixth consecutive increase in the past 12 months, to 18.75%, from 18.50% to increase efforts to curb rising inflation.
The apex bank also narrowed the asymmetric corridor around MPR to +100/-30 from +100/-700 basis points.
Source: Legit.ng
