There are signs that as borrowings from the apex bank increase, Nigerian banks are becoming more and more dependent on the Central Bank of Nigeria (CBN) for liquidity.
According to CBN data obtained by Vanguard, the banks borrowed N10.35 trillion from the CBN’s Standing Lending Facility (SLF) during the first half of 2023, H1’23, which ended last weekend. This represents a staggering 140 percent year-over-year (YoY) increase from N4.3 trillion during the same period of 2022, H1’22.
According to the data, the first quarter figure of N4.95 trillion already exceeded the half-year figure for 2022, and subsequent borrowing increased the reliance by another 5.05 percent to N5.4 trillion in the second quarter of 23.
The information also reveals that bank deposits in the SDF, the apex bank’s standing deposit facility, declined by 2.0% in the second quarter of 23 to N898.25 billion from N1.36 trillion in the first.
The two quarters’ combined effects, however, resulted in a 34 percent increase in the banks’ SDF balances with the CBN during the first half of ’23.
The increase in bank borrowings from the SLF is a result of the economy’s ongoing increase in currency in circulation (CIC) and currency outside of banks.
The CBN’s currency redesign measures between Q4’22 and Q1’23 had increased bank liquidity significantly, while CIC saw a sharp decline.
However, the liquidity movement changed direction after the policy was suspended in Q1 of 23.
But according to Mrs. Aishah Ahmad, a member of the Monetary Policy Committee (MPC), in the CBN Communique No. 148 of the 291st Meeting of the MPC with members’ personal statements held in May 2023, the banking industry soundness indicators are still strong as of April 2023, with capital adequacy ratio at 12.8%, non-performing loans ratio at 4.4% (down from 5.3% in April 2022), and liquidity ratio at 45.3% (above the
The results of the stress tests revealed that the industry’s liquidity and solvency positions could withstand mild to moderate shocks in the short to medium term, she continued.