CBN lending dives 76% to N4trn as banks opt for higher SDF rates

Business a.m.

The Central Bank of Nigeria (CBN) has reported a significant decrease in the volume of bank borrowings from its Standing Lending Facility (SLF) in August, indicating a possible easing of financial pressure on Nigerian banks.

According to CBN data, banks’ SLF borrowings dropped by 76.4 percent month-on-month (MoM) in August, falling to N4.04 trillion from the N17.12 trillion borrowed in July.

While bank borrowings from the CBN’s SLF declined, the CBN financial data revealed a substantial increase in banks’ deposits in the central bank’s Standing Deposit Facility (SDF). The SDF deposits surged by 270.7 percent month-on-month (MoM) to N8.12 trillion in August, up from N2.19 trillion in July.

According to analysts, the significant increase in deposits in the CBN’s Standing Deposit Facility coupled with the decline in bank borrowings from the CBN’s Standing Lending Facility indicates that Nigerian banks may be experiencing a surplus of idle funds within their systems.

This, they noted, suggests that businesses may be encountering difficulties accessing credit, as the recent hike in the Monetary Policy Rate (MPR) by the Central Bank has pushed up borrowing rates, potentially dampening demand for credit.

This development appears to be in line with the CBN’s recent policy move to increase the rate for the Standing Deposit Facility (SDF), as part of the central bank’s ongoing efforts to discourage excess liquidity holdings at the CBN and encourage increased lending by commercial banks.

The uptick in the SDF rate has incentivised banks to increase their deposits with the CBN, while discouraging them from borrowing from the Standing Lending Facility (SLF), suggesting that the CBN’s policy move may be bearing fruit in encouraging lending activities.

Following the recent Monetary Policy Committee (MPC) meeting, the Central Bank of Nigeria (CBN) released a circular disclosing its decision to revise the Asymmetric Corridor around the Monetary Policy Rate (MPR) from +100/-300 basis points (bps) to +500/-100 bps, in an effort to discourage banks from holding excess liquidity and stimulate lending.

In addition, the CBN raised the Standing Lending Facility (SLF) rate, which banks use to borrow short-term funds, to 31.75 percent.

In addition to the adjustment in the MPR corridor, the CBN also raised the Standing Deposit Facility (SDF) rates for commercial and merchant banks.

Specifically, for deposits up to N3 billion at the Central Bank, the SDF rate was increased to 25.75 percent, while deposits above N3 billion were subject to an SDF rate of 19 percent, providing further incentive for banks to lend instead of holding excess liquidity.