Nigeria's banks hit by tight liquidity borrow heavily from central bank - Report

The decision of the Central bank of Nigeria (CBN) to tightened liquidity in a bid to support the local currency might have resulted in high level of borrowing by banks from the discount window of the apex bank. The CBN in July imposed 50 percent cash reserves requirements (CRR) on all public sector funds with local lenders as part of measures to tighten liquidity and curb speculative bid at the foreign exchange market, but the effect of the measure in August showed dare liquidity crunch in the money market.

CBN Gov, Sanusi

Figure released by the regulatory bank showed that banks, discount houses and other financial institutions embarked on aggressive borrowing from the CBN discount window in the period after the first debiting of public sector CRR in august.

Data from the CBN indicate that deposit money banks (DMBs), merchant banks and discount houses more than tripled the amount borrowed in August alone to meet their financial obligations.

The CBN latest Economic Report for August showed that banks increased their borrowing from the Standing Lending Facility (SLF) from N793.08 billion in July to a N2.465 trillion in August, indicating a 210.8 percent increase month-on-month.

The regulator said withdrew N896.43 billion, being 50 per cent cash reserve requirement (CRR) on public sector from the banking system in August, which exacerbated the liquidity crunch in the market, hence the resort to the SLF by lenders.

The figure contained in the report showed that on the average, banks borrowed up to N123.29 billion daily to sustain their operations in August compared with the daily average of N34.48 billion in the previous month.

Interbank lending rates rose to an all time of around 45 percent on overnight borrowing following the introduction of the new CRR policy, which left banks’ vault empty after the deduction in early August.

Nigerian banks are heavily dependent of monthly revenue disbursal by the central bank to all tiers of governments, which help to oil their operations. Analysts said such money is usually rerouted back to government debt instrument, which in effect means that the government borrows its own money from banks.