Banks Borrow N4trn from CBN to Patch Liquidity Gap
Underscored by tight liquidity in the financial system, deposit money banks (DMBs) accessed about N4 trillion in March from the Standing Lending Facility of the Central Bank of Nigeria (CBN).
For the most part of the first quarter, Nigerian banks have seen huge pressures from regulatory policy failure that is expected to impact earnings negatively.
Pressures from the naira crisis that spooked economic activities top the list of margin-dilutive development experienced for local banks, and some have started projecting lower profit for the period.
To meet liquidity demand, local banks have been unpacking their treasury bills, pushing the yield above 7% in addition to spot rate repricing seen in the money market.
The apex bank’s foreign currency special secondary market intervention auction sales debit alongside heightened withdrawal via the CBN standing lending facility expanded the liquidity deficit to ₦415.28 billion, according to TrustBanc Capital.
In March, the investment firm said the liquidity balance touched the deepest deficit since the turn of the year, due to sustained pressure by DMBs at the Standing Lending Facility window.
For context, an aggregate of ₦3.97 trillion was taken out, accounting for the largest single-month withdrawal since May 2021, TrustBanc said in a note. Naira Steadies as Banks Issue Update on FX Purchase
For Q1, liquidity levels stayed above ₦150 billion at inception, underscored by multiple inflows from Bond coupons worth ₦482 billion, FAAC disbursements, and other statutory payments, according to analysts.
Mid-way, liquidity levels moderated, given the bond auction settlement worth ₦770.56 billion. However, liquidity flattened at the tail end of Q1, as demand for short-term cover intensified. Hence, rates stayed elevated for the latter part of Q1.
Standing Lending Facility (SLF), an upper corridor monetary policy rate at which DMBs and discount houses can borrow money from the CBN at a pre-specified rate, typically the benchmark policy rate plus a margin. #Banks Borrow N4trn from CBN to Patch Liquidity Gap
