Deposit money banks borrowed a total of N27.47 trillion from the Central Bank of Nigeria (CBN)’s discount window known as Standing Lending Facility (SLF), in the first half of 2017, showing a deteriorating liquidity condition of the industry.
This represents an increase of 440.7 percent over the level of N5.08 trillion borrowed over the corresponding period of 2016, CBN revealed in its 2017 half year activity report.
SLF was utilized by the banks in order to enable them square up their positions after inter-bank market trading hours.
Managing director, Afrinvest Securities limited, said the increasing in the level of Banks participation at the CBN discount window signifies higher needs of cash to meet short term obligations.
“The rise in the level of takings/borrowings at the Standing Lending Facility window may signify that some banks have very low liquidity levels, hence borrow to meet those obligations. Moreover, it may also signify a problem of Assets and Liabilities mismatch with most assets haven’t no longer maturities than the liabilities. CBN needs to have closer examination of banks that are more frequent at the SLF window to ascertain their liquidity levels and advise on Assets-Liabilities mismatch”, Ebo told BusinessDay.
The report revealed that out of the amount, N20.6 trillion was conversion from unsettled Intra-day Liquidity Facility (ILF).
The patronage of the facility reflected the liquidity position during the first half of the year, as requests were at its lowest on January 2, 2017 with N83.61 billion and at its highest on April 18, 2017 with N478.54 billion.
Johnson Chukwu, managing director/CEO, Cowry Asset Management limited explained by phone that there was tight liquidity and the banks have to resort to CBN’s discount window.
He said the implication of this is that banks will not be able to lend to the real sector of the economy and where they do so, they will charge higher interest rate.
The total request for Standing Deposit Facility (SDF) in the review period was N5.5 trillion, indicating a daily average volume of N45.54 billion as against a total SDF of N12.7 trillion and daily average of N102.42 billion in the corresponding period of 2016. Further analysis of the transactions indicated that the highest amount of SDF was N121.50 billion on February 2, while the lowest was N0.30 billion on March 20.
The patronage of the SDF reflected the liquidity unease in the system as less funds were deposited compared with the corresponding period of the preceding year. The reduced patronage was due to tighter monetary operations through increased OMO auctions. The foreign exchange interventions, in addition, moderated the cash balances in the banking system. The restriction of N7.50 billion maximum remunerable SDF per bank remained applicable, the report stated.
Consequently, the interest paid on SDF amounted to N1.99 billion at the rate of 9.00 per cent in the first half of 2017, as against N2.84 billion at 4.00 per cent from January 1 to March 21 and 7.00 per cent from March 22 to June 30, 2016.
HOPE MOSES-ASHIKE
