Nigerian banks borrowed a total of N776.1 billion from the Central Bank of Nigeria’s (CBN) Standing Lending Facility (SLF) in October, reflecting a significant borrowing activity amid tighter liquidity conditions.
This figure represents a 97.5 percent increase from the previous month, indicating the increased need for liquidity in the banking system as CBN policies impacted the market.
According to Investment bankers from Afrinvest (West) Africa Limited, in October 2024, system liquidity moved into a deficit, closing short by N207.6 billion compared to a surplus of N253.6 billion the previous month.
The shift underscores the CBN’s ongoing efforts to control liquidity in response to economic conditions. This liquidity shortfall, alongside rising borrowing from the SLF, highlights banks’ reliance on the central bank to manage their short-term liquidity needs.
The CBN’s SLF serves as a window through which banks can borrow funds on an overnight basis to meet temporary liquidity challenges. The sharp rise in SLF borrowings in September suggests that Nigerian banks were significantly impacted by the tighter monetary conditions.
The increase in borrowing is seen as part of broader market trends, with banks seeking more funds to stabilise their operations and meet customer demands amid heightened pressure on liquidity.
Despite the increased demand for the SLF, the rates on interbank funds experienced some relief. The Open Purchase Rate (OPR) and Overnight Rate (OVN) both declined in October, easing by 6.9 percentage points and 7.3 percentage points month-on-month, closing at 21.1 percent and 21.5 percent, respectively.
This moderation in rates indicates that while liquidity remains constrained, some relief was available in the form of lower short-term borrowing costs.
The CBN has been pursuing a tighter monetary policy stance as part of its efforts to control inflation and stabilize the naira. Recent policies, including increases in the monetary policy rate, have added pressure on the financial system’s liquidity. As banks face these challenges, their borrowing from the CBN highlights the central bank’s role as a lender of last resort, providing necessary liquidity to maintain stability within the banking system.
Analysts suggest that the higher borrowing trend could continue as long as the CBN maintains its current stance on monetary policy. The increased SLF usage also reflects the impact of higher interest rates and the tightening of credit conditions, as banks face higher costs in maintaining their liquidity positions.
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