CBN Debits Banks N422.7bn for Failure to Meet Target
Godwin Emefiele, CBN Gov
Nigerian deposit money banks (DMBs) that failed to meet 65% loan-to-deposit target were debited about N423 billion last week amidst uncertainties in the economy. Amidst a sustained struggle to maintain a solid liquidity level, local lenders have seen serial debits on the cash reserve requirements in recent years.
Irrespective of local lenders’ appetite for creating credit, the apex bank maintains its stance on lending to the real sector of the economy to drive growth. Unfortunately, the result has been unimpressive as gross domestic product growth tracked lower in 2022.
Daily Global news reported that liquidity tasty Nigerian lenders borrowed N4 trillion from the Central Bank of Nigeria (CBN) Standing Lending Facility (SLF) window to close gaps in their respective liquidity records.
In the money market, liquidity has improved, according to analysts. The robust funding profile has dragged short-term benchmark interest rates lower, though still in the double-digit region. Money market rates had stayed in the double digits hit the region in the first quarter and thereafter before flood on maturities saturate the system.
On Friday, analysts reported that financial system liquidity closed with an estimated balance of ₦270 billion, despite debits against banks’ cash reserve requirements. TrustBanc Capital Limited stated in its note that a total sum of ₦422.7 billion was taken out from local lenders’ CRR records in addition to retail secondary market intervention sales (SMIS) auction settlement.
Accordingly, Interbank rates – open report and overnight lending – expanded by about 125 basis points to close at 12.13% and 12.63%, respectively on Friday, according to data from the FMDQ Exchange platform.
Recall that system liquidity opened the week with a buoyant balance of ₦534.78 billion, it expanded to ₦756.77 billion on Thursday. The surge in the funding profile in the financial system was buoyed by inflows from RT200 worth ₦144 billion, initial cash reserve refund, and foreign currency swap maturities.
As a result, inter-bank funding rates traded at market floor levels all week, save for Friday. “In the coming week, bond auction settlement will usher in another round of thin liquidity and elevated funding rates regime”, TrustBanc Capital said.
