From June to August, deposit money banks (DMBs) borrowed N4.4 trillion from the Central Bank of Nigeria (CBN) through its overnight lending window, this is according to data obtained from the regulator.
Subject to certain qualifying restrictions, banks frequently use the CBN’s Standard Lending Facility (SLF) to borrow money to close their short-term liquidity gap. The Standing Deposit Facility (SDF) window, on the other hand, is another tool used by lenders to deposit extra money.
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Commercial banks can borrow SLF at a rate 100 basis points higher than the monetary policy rate (MPR). In the case of SDF, lenders receive the current benchmark interest rate less 700 basis points (seven per cent).
The total amount accessed from June to August was N4.44 trillion, with June accounting for more than 43.3% of that sum. From N1.93 trillion in June to N1.46 trillion in July, the sum decreased. Last month, it fell even further, to 1.06 trillion.
The SLF had a value of N953.6 billion in May; only in June did it double. The reflection observed during the past three months might have pointed to a progressive easing of the banks’ short-term liquidity issues. It might also imply that banks are aggressively repricing risks.
The behavior of the trend of SDF, which could be considered as an increasing function of risk premium, in the period reflects the two closely related possibilities. Bank deposits through the SDF window totaled N265.3 billion in June. The amount fell to N60.8 billion in July before increasing by 185% to N173.2 billion in August.
Activities at the repurchase order (repo), a short-term contract to sell securities in order to buy them back at a slightly higher price that banks also used to manage temporal illiquidity, fell by 55.5 percent last month. In August, the value of repo was N1.36 trillion.
In June and July, repo recorded N1.65 and N3.07 trillion respectively, bringing the three-month transaction to N6.08 trillion.
In August, the banks’ exposure to repo and SLF fell, while excess overnight deposits (SDF) went up. The trends suggest the banks were either risk-shy or saw an increase in deposit mobilisation.
Last month’s credit data is unavailable. But the country’s net domestic credit, as of July, had seen a year-to-date (YTD) growth of 23 per cent. The figure stood at N48.76 trillion as at December 2021 but soared to N59.96 trillion.
Credit to the private sector grew at a slower pace than credit to the public sector during the period. With the gap between the two broad categories of credit rapidly closing, credit extended to the government increased by 45 percent in seven months, reaching N20.09 trillion in July.