Banks Borrowing From CBN Increase By 174% To N2.4trn
In apparent reflection of the intense scarcity of funds that prevailed in the interbank money market in April, banks’ borrowing from the Central Bank of Nigeria (CBN) rose by 174 per cent to N2.48 trillion from N904.6 billion in March.
The banks’ deposits with CBN also declined significantly. Banks borrow from the CBN through its Standing Lending Facility (SLF) to fund short term liquidity cash shortfall. They, however, deposit their idle cash in the apex bank’s Standing Deposit Facility (SDF).
Findings in the CBN’s data release show that while banks’ borrowing through the SLF rose sharply by 174 per cent in April, their deposits with the apex bank through the SDF fell by 57 per cent to N169.74 billion in April from N392.37 billion in March.
The increased borrowing from CBN by banks was driven by the intense liquidity squeeze that prevailed in the interbank money market in April.
The scarcity of funds was caused by huge outflows compared to inflows into the market during the month.
For example, the CBN mopped up N206.8 billion through Open Market Operation, OMO, treasury bill sales while it injected only N80 billion through matured bills.
Hence the market suffered net outflow of N127 billion via the apex banks’ OMO auctions.
This is in sharp contrast to the net inflow of N205 billion enjoyed by the market in March, when the apex bank injected N500 billion through matured OMO bills but mopped up N295 billion.
Reflecting the scarcity of funds created by this development, the average daily opening balance of the interbank money market fell by 31 per cent to N170.04 billion in April from N245.84 billion in March.
According to analysts at Financial Derivatives Company (FDC), “ For the first time since July 6, 2020, the opening position of banks was negative due to a highly illiquid market.”
Furthermore, the intense liquidity squeeze sent the cost of funds to the roofs. According to the CBN, the weighted average interest rate for collateralised lending (Open Buy Back, OBB) in the interbank money market rose to 32.63 per cent on April 16, the highest in two years, before retreating to 14.58 per cent on April 28th.
Following the same trend, interest rate on OBB lending shot up by 18.25 percentage points to 27.5 per cent at the end of April from 9.25 per cent on March 31st.