Banks borrow N19.6tn from CBN amid rising liquidity problems

Commercial banks borrowed a total of N19.64tn from the Central Bank of Nigeria in 2019, an increase of 73 per cent from the N11.36tn borrowed in 2018.

This has raised concerns among analysts following the rising liquidity problems in the financial services sector.

This happened barely one month after the World Bank warned the CBN against supporting undercapitalised banks indefinitely.

According to the apex bank’s financial data analysed by Sunday PUNCH,  commercial banks through the CBN Standing Lending Facility window borrowed N7.43tn between July and December 2019 as against  N4.5tn borrowed in 2018, an increase of 65 per cent.

The analysed data revealed that banks borrowed N8.66tn from the regulator in the first quarter of 2019; N3.55tn in the second quarter; N6.11tn in the third quarter; and N1.3tn in the fourth quarter.

Top bank executives told one of our correspondents that commercial banks and merchant banks continued to access the CBN SLF window to square-up their financial position in 2019.

The trend at the CBN’s SLF window showed more patronage while the Standing Deposit Facility declined as commercial banks strive to meet the regulator’s 65 per cent Loan to Deposit Ratio policy.

The SLF is the regulator window through which commercial banks access funds from the CBN to carry out their business activities and meet obligations that are falling due while the  SDF means commercial banks deposit with the apex bank.

According to financial services executives, banks with more liquidity problems appear to frequent the CBN SLF window than those with fewer challenges.

Meanwhile, the Monetary Policy Committee on March 26, 2019, voted to reduce Monetary Policy Rate to 13.5 per cent from 14.00 per cent, applicable to the  SLF interest rate of 15.50 per cent as against 16 per cent in 2018.

The report further showed that during  the fourth quarter of last year,  the commercial banks borrowed N2.8tn from  the CBN, representing a 29 per cent decline from N3.96tn borrowed in the fourth quarter of 2018.

Sunday PUNCH’s findings showed that the commercial banks during the fourth quarter of 2019 reduced borrowing from the apex bank and focused more on the LDR deadline which mandates them to give soft credit to key sectors in the economy.

According to financial experts, although the data revealed that banks borrowed more funds from the regulator in 2019, compared to 2018, most of those borrowings appear to have come from small and mid-size banks experiencing liquidity problems.