Access, Zenith, Others Borrow N5.96trn as CBN Removes N5 Trillion from Savings, Current Accounts

• Commercial banks in Nigeria are resorting to more borrowing from the Central Bank of Nigeria to meet their obligations
• The development comes amid a recent CBN mop-up of about N5 trillion from the economy to control inflation
• The banks' borrowing from the CBN for February 2024 rose by 65.5% to N5.96 trillion in the review period

Legit.ng's Pascal Oparada has reported on tech, energy, stocks, investment, and the economy for over a decade.

Many commercial banks in Nigeria responded to the recent MPR hike by the CBN by raising their lending rates

The Central Bank of Nigeria has said that commercial banks in Nigeria are borrowing more money from it to shore up their cash positions amid a recent huge liquidity mop-up by the apex bank.

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Commercial banks resort to borrowing

According to February 2024 data from CBN, many commercial banks are now resorting to substantial borrowing from the apex bank to meet their liquidity obligations.

Reports say that the CBN data shows that banks' borrowing from its Standing Lending Facility (SLF) rose monthly by 65.5% to N5.96 trillion in February from N3.6 trillion in January 2024.

Per the data, the banks also deposited about N330.71 billion in the CBN's Standing Deposit Facility (SDF) in the review period, a 72.4% decline compared to the N1.2 trillion deposited in January 2024.

The development comes amid various policies of the CBN to prepare the banks against weaknesses and shocks from within and outside the country.

The CBN recently hiked the Monetary Policy Rate (MPR) to 22.75% and banks' Cash Reserve Ratio (CRR) to 45% from 32.5% to hedge against surging inflation.

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Experts believe that the increase in MPR will raise the asset yields of some banks by an average of 400 basis points in the 2024 financial year.

Commercial banks hike lending rates

Already, some banks have raised their lending rates by as much as 400 basis points to 30% from 25% recorded in December 2023.

Nigerian banks began increasing their lending rates after the Monetary Policy Rate (MPR) hike by the Central Bank of Nigeria (CBN).

Analysts believe the development will see existing loan facilities paying more due to the record hike by the CBN.

Zenith, GTBank take the lead

Nigeria's largest bank by market capitalisation, Zenith Bank, increased its rate by 500 basis points to 30% from 25%, effective March 12, 2024.

The bank told its customers in a notice that it is constrained to review the interest rate on their credit facilities starting from the announced date.

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Zenith said:

"We crave your understanding as we continue to monitor the Market and update you accordingly," the bank said.

Another commercial bank, GT Bank, also revised its lending rate by 500 basis points in response to the CBN MPR hike.

Financial experts have said more banks in Nigeria will follow suit in the coming days.

CBN's MPR to affect interest rate

The MPR is a benchmark for lending by the bank, and the CBN sets it, meaning banks will have to increase rates when the MPR is raised and review them downwards when it is reduced,

The apex bank raised the country's MPR by 400 basis points to 22.75% at its last MPC meeting to tighten liquidity in the economy and stabilise the foreign exchange rate.

CBN also adjusted the asymmetric corridor around the MPR to +100/-700 from +100/-300 basis points and raised the Cash Reserve Ratio from 32.5% to 45.0%, retaining the Liquidity Ratio at 30%.

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Zenith Bank said the hikes continued to impact the cost of business in the financial services industry.

BusinessDay reports that higher lending rates mean individuals and businesses will experience higher costs when borrowing from banks.

Analysts believe the development could lead to reduced borrowing and investment activities as borrowers may find it more costly to take out loans for various projects.

It may also lead to reduced disposable income by consumers and dampen consumer spending.

CBN issues warning to microfinance banks

Legit.ng reported that the Central Bank of Nigeria (CBN) has warned all Primary Mortgage Banks (PMBs) in the country regarding the timely submission of regulatory returns.

It also issued a stern warning to Development Finance Institutions (DFIs) and Microfinance Banks.

The CBN expressed dismay over the late and non-rendition of periodic returns related to the Financial Institutions' Annual reports in a press release published on its website on March 5.

Source: Legit.ng