Access, Zenith, UBA, Others Rush to Borrow N3 Trillion From CBN After Important Adjustment to Rate

• In less than a week, Nigerian banks and discount stores borrowed N3 trillion through the Standing Lending Facility from the CBN
• The discount houses and lenders deposited N493.6 billion through the Standing Deposit Facility
• This is as the Central Bank recently lifted the suspension on the Standing Lending Facility for Authorized Dealers

Legit.ng journalist Zainab Iwayemi has over 3-year-experience covering the Economy, Technology, and Capital Market.

An Afrinvest Research report has found that Nigerian banks and discount houses borrowed N3 trillion from the Central Bank of Nigeria via the Standing Lending Facility in less than a week.

Over the same time frame, the discount houses and lenders deposited N493.6 billion through the Standing Deposit Facility.

The report states that the increase in borrowing led to a 4.7% rise in system liquidity, which is currently at N712.3 billion.

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To control the amount of money in circulation and liquidity in the financial system, the Central Bank uses the Standing Lending Facility and Standing Deposit Facility.

A move toward a contractionary monetary policy strategy was indicated in April when the central bank issued a fresh mandate to increase lending to the real economy.

Following a decision by the Monetary Policy Committee to change the top corridor of the standing facilities from 1% to 5% around the Monetary Policy Rate, the Central Bank recently lifted the suspension on the Standing Lending Facility for Authorized Dealers.

Need for short term liquidity increases

According to Afrinvest, the spike in borrowing was caused by banks and discount houses increasing need for short-term liquidity.

However, The Punch reported that despite the liquidity boost, inter-bank lending rates displayed mixed results, with the Open Purchase Rate decreasing by five basis points to 31.2%, while the Overnight Rate edged up by three basis points to 31.7%.

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In response to rising liquidity, the Debt Management Office reduced interest rates last week to create favourable borrowing conditions.

Afrinvest Research also announced the successful introduction of Nigeria's first bond denominated in dollars, with the goal of raising $500 million to help with the country's fiscal deficit until 2024.

The $400 million oversubscription of the bond, which has a five-year maturity, indicates high investor demand.

The interest rate cut and robust demand for bonds, according to Afrinvest analysts, show that investor trust in Nigeria's financial markets is rising.

As liquidity continues to change, they anticipated that these developments would have an impact on borrowing methods and market behaviour.

This is occurring amidst claims that bank depositors and other stakeholders are worried that they won't be able to retrieve their money whenever they want.

The country's ATMs are performing less and less reliably, which has led to a spike in complaints.

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Customers have been complaining that bank branches ration the cash they give their customers and even the Automated Teller Machines, ATMs, don’t dispense cash and when they do, the cash is rationed per ATM card.

CBN takes over money left in dormant accounts

Legit.ng reported that the Central Bank of Nigeria (CBN) had issued a new directive to Nigerian financial institutions regarding dormant accounts.

The new directives disclose that the CBN will take over the funds left in the accounts and invest them in treasury bills and other securities.

According to the circular issued on Friday, July 19, 2024, and signed by the bank’s Ag director of Financial Policy and Regulation Department, John Onojah, the bank disclosed that it shall open and maintain an account meant for warehousing unclaimed balances in banks and other financial institutions in Nigeria.

Proofread by Kola Muhammed, journalist and copyeditor at Legit.ng

Source: Legit.ng