In July 2022, banks operating in Nigeria borrowed a staggering amount of N4.5 trillion from the Central Bank of Nigeria, an increase of 27% month over month from the N3.6 trillion borrowed in June 2022.
To access short-term funding from the apex bank, banks can use the Standing Lending Facility and Repo lending.
In addition to lending money to banks through the SLF, which has an interest rate 100 basis points higher than the current monetary policy rate of 14%, the CBN also does so through repurchase agreements (Repo).
Due to their short-term maturity status and the support of the government, repos are typically seen as less hazardous investments.
According to CBN financial data for the month under consideration, bank borrowing through the SLF decreased by 24.37 percent MoM to N1.46 trillion in July from N1.93 trillion in June 2022, while bank borrowing through repo arrangements increased significantly by 86.1 percent MoM to N3.07 trillion in July from N1.65 trillion in June 2022.
However, according to experts, the tightening of the money market is a result of macroeconomic challenges.
Mr. David Adnori, vice president of Highcap Securities Limited, voiced concern about the state of the economy of the country, claiming that many banks had been obliged to use the CBN lending window, particularly in July, due to the increase in interest rates and growing inflation rates.
He said, “Banks without liquidity might have trigger the high borrowing from the CBN. Besides, economic uncertainty has started to surface following the 2023 general elections.”
Johnson Chukwu, the Chief Executive Officer of Cowry Asset Management Limited, also spoke out and connected the incident to the banks’ lack of liquidity.
He said, ““The level of involvement of FAAC was not quite high in that month, there was no major inflow into the financial system and in the same month of July, there was a major outflow including the N180bn Dangote loan.
“So those outflows impacted pressures on the bank’s system liquidity that compelled banks to increase their borrowing from the lending facility.”
Further research revealed that banks borrowed N13.36 trillion during the first seven months of 2022, a decrease of 24% from the N17.9 trillion borrowed during the seven months before that in 2021.