Business

Liquidity crunch pushes banks’ borrowing from CBN to N240.57bn in four months

Data from the Central Bank of Nigeria (CBN) has showed that deposit money banks’ (DMBs) borrowing from the Central Bank’s Standing Lending Facility (SLF) increased to N240.57 billion on Wednesday, April 12, 2023 from N78.95 billion as of December 12, 2022, when new naira notes were launched by President Muhammadu Buhari.

The commercial banks’ borrowings from the Central Bank of Nigeria (CBN) surged by 204.71 percent in four months, signalling that they faced a liquidity squeeze in the period as the country’s demonetisation drive triggered chronic cash shortages.

When compared with the figure in October 2022 when the naira redesign programme was announced, the banks’ borrowing from the SLF rose by 7.95 percent from N222.85 billion.

Standing facilities (lending and deposit) are instruments of liquidity management, according to the CBN. They serve as avenues to invest surplus funds overnight and to square up whenever the system is short at the end of each business day.

On October 26, 2022, the apex bank announced that the N200, N500 and N1,000 notes would be redesigned and introduced into the economy from December 15, 2022 while commercial banks were directed to return existing denominations to the CBN.

Data obtained from the CBN’s website revealed that the prime lending rate, which is the interest rate that banks charge their most creditworthy customers, increased to 13.62 percent year-on-year in February 2023 from 13.17 percent in February 2022.

The maximum lending rate, which is the average highest amount charged by banks for lending to riskier sectors, rose to 28.75 percent from 28.14 percent.

The CBN has raised its benchmark interest rate, also known as the monetary policy rate (MPR), to 18 percent from 11.5 percent in May 2022.

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