Latest figures from the Central Bank of Nigeria (CBN) show that deposit banks in the country withdrew $16.9 trillion via the Standard Lending Facility (SLF) in October 2024, Techpoint Africa can report. When compared to the ₦3.6 trillion withdrawn in January 2024, the new numbers indicate that the amount borrowed by banks rose by ₦13.3 trillion in 10 months.
The CBN through the SLF provides short-term loans to commercial banks and other eligible financial institutions seeking funds to offset temporary liquidity shortfalls. Against this background, the surge in SLF withdrawals suggests the Nigerian banking sector may be experiencing liquidity challenges.
The CBN, in its October 2024 Economic Report, documented that the “average banking system liquidity declined in October 2024, relative to the level in the preceding month driven, mainly, by withdrawals via monetary operations.”
It added that “activities at the standing facility window increased in October 2024, relative to the level in the preceding month reflecting the liquidity level in the banking system. Total transactions at the SLF window rose to ₦16.9 trillion in the review period.”
On a month-on-month basis, borrowings doubled between September and October, rising from ₦7.9 trillion with a daily average of ₦40 billion to ₦16.9 trillion at a daily withdrawal average of ₦81 billion.
Conversely, transactions on the Standing Deposit Facility (SDF) trailed far behind SLF withdrawals during the 10 months. In January, SDF transactions generated only ₦1.16 trillion, 67.7% lower than the SLF figures recorded in the same months. Even though SDF activities increased in October as reflected in the ₦3 trillion deposits recorded by the CBN, it was still 82% short of the month’s SLF volume.
The CBN stated that SDF “declined to ₦3.01 trillion with a daily average of ₦0.14 trillion relative to ₦4.4 trillion, with a daily average of ₦0.22 trillion in the preceding month.”
The SDF is essentially the opposite of the SLF. Using the SDF, banks can deposit their excess funds with the CBN, allowing the apex bank to mop up surplus liquidity in the banking system and moderate inflationary pressures.
Rising SLF and lower SDF point to liquidity constraints and possibly tighter monetary conditions.
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Per the CBN, the sector’s liquidity challenges can be linked to the burden of SLF repayments, Cash Reserve Ratio (CRR) debits and Open Market Operations (OMO) sales. It also noted that Treasury Bills sales and the Foreign Exchange OMO swap settlements have affected the ability of some banks to meet their financial obligations.
Higher interest rates and reduced deposit inflows due to the successive hikes in Monetary Policy Rates may have also contributed to the liquidity crunch. During the reviewed period, the apex bank increased the Monetary Policy Rate (MPR) five times, raising it from 18.75% in January 2024 to 27.25% by September 2024.