Banks Reduced Borrowing From Central Bank of Nigeria To 46%

Banks’ borrowing from the Central Bank of Nigeria, CBN, fell by 46% month on month, MoM, to N1.3 trillion in January, indicating improved liquidity in the interbank money market.

Banks, on the other hand, increased their deposits of idle funds with the CBN by 29% month on month to N272 billion in January.

The Central Bank of Nigeria (CBN) has two short-term lending windows for banks: the Standing Lending Facility (SLF) and Repo lending.

While the CBN lends money to banks through the SLF at 100 basis points (bpts) above the Monetary Policy Rate (MPR), it also lends money to banks through the Repurchase (Repo) arrangement, which involves the purchase of bank securities with the agreement to sell back at a specific date and usually for a higher price.

The CBN, on the other hand, accepts bank deposits through its Standing Deposit Facility (SDF).

According to CBN data, banks’ borrowing through Repo arrangements fell by 41% year on year in January, to N952.79 billion from N1.621 trillion in December last year.

Similarly, bank borrowing through the CBN’s SLF fell by 56% month on month to N313.43 billion in January from N717.34 billion in December.

As a result, banks’ borrowing from the central bank via the SLF and Repo increased by 46% year on year to N1.3 trillion in January from N2.3 trillion in December.

According to Financial Vanguard analysis, the decrease in banks’ borrowing from the central bank in January was caused by an increase in the volume of idle funds (liquidity) in the interbank money market during the month.

This is reflected in the market’s average daily opening position in terms of liquidity, which increased by 32%, MoM, to N179.98 billion as of January 28th, from N135.98 billion on December 31st, 2021.