Cash crunch hits banks, as they borrow N881.53bn in one week from CBN

There are strong indications that Deposit Money Banks (DMBs) do not have enough cash to meet their immediate financial obligations. This was evidenced by the rush to the Central Bank of Nigeria (CBN) last week where they borrowed a total of N881.53 billion at 14 per cent interest rate.

Interestingly, some of the lenders had earlier in the week deposited a total of N113 billion with CBN to earn seven per cent interest rate, only to face a rising cost of borrowing from each other (interbank lending rate), which  shot up amid strained liquidity.

Available records seen by Nigerian Tribune showed that Standing Deposit Facility (SDF) declined week-on-week by 24.32 per cent to N113 billion while Standing Lending Facility (SLF) increased by 24.49 per cent to N881.53billion.

Banks access the SLF to borrow from the CBN while they access the SDF to place deposit with the CBN. Presently the CBN charges 14 percent as interest rate on loans to banks through the SLF while it pays 7.0 percent as interest on deposit placement through the SDF.

Dealers from two major investment banking and securities houses in Lagos confirmed that there was no major inflow of funds into the system, just as aggregate system liquidity opened at about N93 billion on Monday.

The situation they said caused a rise in the amounts banks borrow from each other; Open Buy Back (OBB) and Overnight (O/N) funds to 27.3 per cent and 29.1 per cent on Tuesday, further surging 5.8 per cent and 6.4 per cent to 33.2 per cent and 35.5 per cent on Wednesday respectively.

Confirming the situation, dealers from Cowry Assets Management Limited said though the Central  Bank  auctioned  treasury bills  worth  N246.47  billion  via  Open  Market Operations (OMO), the  outflows  were  offset  by inflows in matured 195-day treasury bills worth N293.75 billion via the same OMO.

The dealers said the cash strain in the financial system may continue this week because the CBN will auction treasury bills worth N183.24 billion via primary market, which will comprise 91-day bills worth  N48.10  billion;  182-day  bills  worth  N48.45  billion; and  364-day  bills  worth  N86.68  billion.

The outflows they said will  outweigh maturing  treasury  bills worth N96.55  billion  via  primary market, comprising   91-day  bills worth N48.10  billion  and  182-day  bills worth N48.45  billion.  “Hence we anticipate increase in interbank interest rates resulting from expected strain in financial system liquidity,” stated Cowry Assets Management Limited.

A top executive of one of the new generation banks who spoke on condition of anonymity, told Nigerian Tribune that though the CBN had maintained strong tightening stance, the cash strain situation was unexpected given that lenders had been depositing a daily average of N100.22 billion with the apex bank in recent past from excess liquidity to earn just 7 per cent interest.

It should be recalled that latest CBN second quarter 2016 economic report indicated that total deposit by banks at the Standing Deposit Facility window during the review period was N6.012 trillion with a daily average of N100.22 billion, compared with N6. 614 trillion recorded in the first quarter of 2016.

The cost incurred by CBN which is the net interest earned by banks from placing their excess liquidity as deposit with the CBN in the past six months  to June, stood at N1.74 billion, compared with N1.08 billion, in the preceding quarter.