Deposit Money Banks in Nigeria paid a total of N1.54trillion as interests on the N12.93trillion loans borrowed from the Central Bank of Nigeria.
The amount was borrowed by the banks during a one-year period, covering April, 2019, and March, this year, under the CBN Standing Lending Facility.
The CBN Standing Lending Facility is an overnight advance available to Deposit Money Banks and merchant banks.
The facility is used by commercial banks to access funds from the CBN to enable them to carry out their business activities and meet obligations to their customers.
“Between October and December last year, the amount accessed by banks, under the facility, was put at N1.3trillion, while interest paid on the loan was N767.13billion.
For the first quarter of this year, between January and March, the amount borrowed by banks, under the SLF, was put at N1.8trillion, on which N767.13billion”
It is fully collateralised with a margin above the face value of the amount applied for.
For non-Federal Government securities, the apex bank reserves the right to determine the collateral margin after accessing the dating of the instrument.
Based on the apex bank’s guidelines, interests on overnight advance are usually deducted from the advance and the balance credited to the borrower’s current account with the apex bank.
The over-riding consideration for the facility is that the lending window should be accessed only on a last resort basis.
The CBN had, in recent times, lamented that DMBs and Merchant Banks had continued to access the standing facilities window to boost their liquidity positions.
Finance experts have attributed the recent increase in the SLF to the low liquidity of some commercial banks.
They argued that most tier-three commercial banks had borrowed heavily from the central bank to boost their daily business activities.
While some of the banks have a strong liquidity base, others, mostly those in the third-tier class in the banking sector, are struggling.
Based on data obtained by The Point from the CBN, between April and June last year, the total amount borrowed by banks under the SLF was N3.62trillion, out of which N2.63billion was paid as interest on the loan.
For the three months, covering July to September, banks borrowed a total of N6.2trillion.
Out of this amount, the interest paid was N4.21billion, based on data from the apex bank.
Between October and December last year, the amount accessed by banks, under the facility, was put at N1.3trillion, while interest paid on the loan was N767.13billion.
For the first quarter of this year, between January and March, the amount borrowed by banks, under the SLF, was put at N1.8trillion, on which N767.13billion interest was paid.
The apex bank said in its economic report that DMBs and merchant banks had continued to access the standing facilities window to boost their liquidity positions.
It said the trend at the CBN showed more frequency at the SLF window, as against the decreased patronage at the Standing Deposit Facility window.
The SDF window is the portal where commercial banks deposit funds with the apex bank.
Applicable rates for the SLF and SDF, according to the CBN, remained at 15.50 and 8.50 per cent, respectively.
The total SDF granted during the one-year period, covering April last year and March this year, was N9.8trillion.
A breakdown of the N9.8trillion showed that N4.98trillion was deposited in the second quarter of last year, while in the third and fourth quarters, N2.08trillion and N1.9trillion were recorded, respectively.
For the first quarter of this year, the SDF was put at N843.09billion.
The CBN Governor, Godwin Emefiele, when asked about the soundness of the banking system, had explained that the sector remained strong, resilient and could effectively finance the economy.
He said, “The Nigerian banking system remains very strong and resilient. Unlike in other climes, the Nigerian banking system appears to be one of the well-regulated industries in the world today.
As at May 2019, Non-Performing Loans in the industry was 11.1 per cent; as at June 2020, it had dropped to 6.4 per cent.
“For Capital Adequacy Ratio, which measures the size of capital that a bank deploys into risk asset, as at June 2019, CAR was 15.2 per cent, but as at June 2020, it remained flat at 15 per cent. On liquidity ratio, by August 2019, it was 48 per cent, but as at June 2020, it had dropped to 37 per cent.”
