Amid a rising liquidity crunch, banks operating in Nigeria borrowed a whopping sum of N4.5tn from the Central Bank of Nigeria in July, an increase of 27 per cent Month-on-Month from N3.6tn borrowed in June 2022.

Banks use Standing Lending Facility and Repo lending to access short-term lending from the apex bank.

While the CBN lends money to banks through the SLF at an interest rate of 100 basis points above the Monetary Policy Rate currently at 14 per cent, it also lends money to banks through Repurchase Arrangement (Repo).

Repos are usually considered less risky due to their short-term maturity status and the backing of the government.

According to CBN financial data for the reviewed month, bank borrowing through the SLF decreased by 24.37 percent MoM to N1.46 trillion in July from N1.93 trillion in June, while bank borrowing through repo arrangements increased significantly, rising by 86.1 percent MoM to N3.07 trillion in July from N1.65 trillion in June 2022. 

However, according to experts, macroeconomic headwinds are causing the money market to become more constrained. 

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.”

Also, speaking, the Chief Executive Officer, Cowry Asset Management Limited, Johnson Chukwu, linked the development to low liquidity on the part of the banks.

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.”

Meanwhile, further findings showed that banks during the first seven months of 2022 borrowed N13.36tn, representing a decline of 24 per cent from N17.9tn borrowed in the prior seven months of 2021.