Nigerian Banks Search for Funds, Rush to CBN, Borrow Over N1trn in Hours

• Nigerian banks have turned to the CBN in their search for operational funds, borrowing over N1 trillion within hours
• The amount is the highest borrowing recorded, according to data from the Central Bank of Nigeria
• Banks obtain funds from the CBN via the Standing Lending Facility (SLF), which serves as a tool for managing liquidity

Legit.ng journalist Dave Ibemere has over a decade of business journalism experience with in-depth knowledge of the Nigerian economy, stocks, and general market trends.

Deposit Money Banks (DMBs) have used the Central Bank of Nigeria (CBN) Standing Lending Facility (SLF) to secure funds for operation.

A standing lending facility is a means by which central banks offer short-term liquidity to banks experiencing temporary funding shortfalls.

Banks' borrowing from CBN

Read also

Full list: Access 1st, Zenith 2nd, others lead tier I banks as Fidelity tops tier II in 2024

Data from the CBN on Thursday, July 4, 2024, revealed that Nigerian banks borrowed N1.53 trillion in a single day, marking an all-time high.

This amount represents an increase of over 100% compared to the N11.13 billion borrowed on the same date in 2023.

Why are banks borrowing?

BusinessDay reports that banks may need to borrow from the CBN to meet immediate obligations, such as covering withdrawals or funding loans.

Banks rely on liquidity to facilitate transactions efficiently.

Analysts attribute this need for Short-Term Liquidity Facility (SLF) borrowing to recent adjustments in monetary policy by the Central Bank, including increased interest rates and tightened credit conditions.

These policy changes have heightened banks' reliance on Central Bank lending for funds.

Read also

FG gives update on debt servicing payment to China, World Bank, IMF, others, gets new loan approval

In its February 2024 Monetary Policy Committee (MPC) meeting, the CBN raised banks' Cash Reserve Ratio (CRR) from 32.5% to 45.0%.

Additionally, in March 2024, it adjusted the CRR for Merchant Banks from 10% to 14%.

Cash Reserve Ratio (CRR) is a specified minimum fraction of the total deposits of customers, which commercial banks have to hold as reserves either in cash or as deposits with the central bank.

CBN issues new directives on domiciliary accounts

Legit.ng previously reported that the CBN released six new directives on how domiciliary bank accounts should operate in the country.

The move aims to promote transparency, discourage speculation, and ensure overall stability in the forex market.

Access, Zenith, and Guaranty Trust, among several other commercial banks, are expected to make the necessary adjustments.

Proofreading by James Ojo Adakole, journalist and copy editor at Legit.ng.

Source: Legit.ng