CBN Lends N660bn To Banks For Liquidity Control
Commercial banks and merchant banks have accessed N660 billion loans from the Central Bank of Nigeria (CBN) to control their liquidity positions and maintain industry stability.
The CBN Economic Report, which captured transactions in the last three months, indicated that the came through the Standing Lending Facilities (SLF) and were meant to allow the lenders square-up their positions within the month.
Daily average was N41.40 billion in the 16 transaction days with daily request ranged from N0.48 billion to N126.74 billion. Total interest earned was N0.37 billion.
The SLF is an overnight CBN credit available on banking days between 2 pm and 3.30 pm, with settlement done on same day value. Funds were sourced mainly from time, savings and foreign currency deposits, as well as accretion to unclassified assets.
The funds were used, largely, to extend credit to the private sector and payment of claims on demand deposit. The rates for Standing Deposit Facilities (SDF) and SLF remained at nine and 16 per cent, respectively.
The report said the total SLF granted, during the review period, was N662.44 billion (made up of N490.29 billion direct SLF and N172.15 billion Intraday Lending Facilities (ILF) converted to overnight repurchase agreement.
According to the report, the trend at the CBN standing facilities window showed a decline at the SLF window, as against the increased patronage at the Standing Deposit Facility (SDF) window. Applicable rates for the SLF and SDF remained at 15.50 and 8.50 per cent, respectively.
Funds were sourced, mainly, from increase in unclassified liabilities, and the mobilisation of time, savings and foreign currency deposits. The funds were used, mainly, to acquire unclassified assets, foreign assets and to boost reserves.
Also, commercial banks’ credit to the domestic economy rose by 0.6 per cent to N22,261billion, a development that was attributed to the rise in its claims on the private sector.
Despite challenges facing the economy, financial pundits expressed optimism that based on right policies, that the economy may not go into a recession as a result of COVID-19, but not in failure to appreciate the magnitude of impact or the risks in the horizon.
In the face of increased uncertainty in the global economic environment, external credit lines to corporates and banks in emerging markets and developing economies could shrink considerably in the near-term.
Capital reversals have already begun in many of these countries including Nigeria and stock markets could crash unless monetary authorities take deliberate steps to ease liquidity in domestic markets.
Again, fiscal policy holds the thicker end of the economic recovery policy lever going forward.
According to experts, from the monetary end, the robust interventions being implemented by the CBN and other policies which were underway, like the Differentiated Cash Reserves Requirement (DCRR) and the minimum Loan-to-Deposit Ratio (LDR) before the COVID-19 pandemic, would continue to increase and redirect credit to the major growth and employment poles.
In his note to the Monetary Policy Committee on the state of the economy and banking sector, Professor of Economics at the University of Ibadan, Festus Adenikinju, said despite the challenges faced by banks, the Financial Soundness Indicators (FSI) remain strong and that the Capital Adequacy Ratio and Non-Performing Loans (NPLs) ratio are trending in the right direction.
He said the Loan to Deposit Ratio (LDR) applicable in the industry has boosted aggregate credit to the economy without impacting negatively on the NPLs ratios as some have feared when the policy was introduced in 2019. The Liquidity Ratio (LR) is above the minimum Prudential Guidelines.
“Both the Return on Equity and Return on Assets lie within the range for comparator countries. The various stress tests also show that the financial system is robust and strong enough to withstand the shocks to the economy from Covid-19 and decline in oil prices,” Adenikinju said.
CBN Deputy Governor, Financial Systems Stability Directorate, Mrs. Aishah Ahmad, said the financial system remains a bright spot of the economy and is well positioned to support domestic output growth, and stimulate economic recovery.
“Even as the CBN monitors the potential risks to financial stability, it is gratifying that financial soundness indicators have remained strong, despite the headwinds and rapid expansion of credit (gross credit increased by N3 trillion between end-May 2019 and end-April 2020) driven by the LDR policy,” she said.
According to her, NPLs ratio stood at 6.6 per cent at end April 2020, compared with 11 per cent at end April, last year, while other prudential ratios remain robust.
