With the persistent aggressive liquidity mop-up by the Central Bank of Nigeria (CBN), Deposit Money Banks (DMB) borrowing from the apex bank increased by 96.4 percent Year-on-Year (YoY) to N981.86billion in the first two months of 2023 as against N499.96 billion first two months of 2022.
A source in the banking sector hinted at the apex bank’s aggressive liquidity mop-up between January and February 2023, stating that DMBs decided to access the special window to meet their daily business obligations.
The apex banking regulating body has Standing Lending Facility (SLF), a short-term lending window for DMBs and merchant banks to access liquidity to run their day-to-day business operations.
The CBN lends money to DMBs and merchant banks through the SLF at an interest rate of 100 basis points above the Monetary Policy Rate (MPR) which is currently at 17.5 percent.
The Month-on-Month (MoM) breakdown of SLF revealed that DMBs and merchant banks in January 2023 borrowed N528.16billion from CBN as against N313.35billion in January 2022 and in February 2023, it increased significantly by 143.3 per cent to N453.7billion from N186.48billion in February 2022, according to the financial data released by the CBN.
The banking sector in the first two months of 2023 witnessed a scarcity of local currency that obstructed physical cash deposits and increasing uncertainty surrounding the nation’s economy.
The Governor of CBN, Godwin Emefiele had at the first Monetary Policy Committee (MPC) in 2023 said money market rates oscillated below and within the asymmetric corridor of the standing facilities window, reflecting changing liquidity conditions in the banking system.
A senior manager in a top tier-2 bank disclosed to THISDAY of CBN’s aggressive liquidity mop-up through
According to him, “The CBN has been aggressive in its intervention in the first two months of 2023. The CBN Cash Reserve Ratio (CRR) debits have increased significantly this year when compared to last year. DMBs always visit the SLF window when CBN debit them CRR every two weeks. When CBN mop-up liquidity, DMBs will first resort to the intervention before they build capacity again.”
With the increasing inflation rate, the CRR debt is a means to reduce banks’ ability to extend access to cash into the system and control the volume of money in circulation.
“This policy in the short run reduces the number of profits DMBs can make from excess credit extension and ensure DMBs will always have the right amount of cash and not fall short of funds when depositors require funds for their personal needs,” another analyst who does not want his name in print added.
Commenting, the Chief Executive officer, of Wyoming Capital and Partners, Mr. TajudeenOlayinka attributed the increase to cash scarcity, stressing that DMBs were no longer enjoying the usual cash deposits that normally come from businesses and individuals that generate a significant amount of cash from relationships with various third parties.
He added that the “Economy has suffered so much from the problem created by CBN’s mismanagement of currency redesign program and deliberate cash scarcity. A program that was expected to be positive suddenly turned negative because CBN did not understand the dynamics of deliberate cash scarcity as an unusual monetary management tool.”
