Data obtained from the regulator indicated that during June and August, Deposit Money Banks (DMBs) accessed a total of N4.4 trillion from the Central Bank of Nigeria (CBN) through its overnight lending window.
Subject to certain qualifying restrictions, banks frequently use the CBN’s Standard Lending Facility (SLF) to borrow money to close their short-term liquidity gap. The Standing Deposit Facility (SDF) window, on the other hand, is another tool used by lenders to deposit extra money.
Access to SLF by commercial banks is 100 basis points higher than the monetary policy rate (MPR). Lenders in the case of SDF receive 700 basis points less than the current benchmark interest rate (seven per cent).
The total amount accessed from June to August was N4.44 trillion, with June accounting for more than 43.3% of that sum. From N1.93 trillion in June to N1.46 trillion in July, the sum decreased. Last month, it fell even further, to 1.06 trillion.
The SLF had a value of N953.6 billion in May; only in June did it double. The reflection observed during the past three months might have pointed to a progressive easing of the banks’ short-term liquidity issues. It might also imply that banks are aggressively repricing risks.
The behavior of the trend of SDF, which may be viewed as an increasing function of risk premium over time, in the period also reflects the two closely connected hypotheses. Bank deposits made through the SDF window were N265.3 billion in June. It fell to N60.8 billion in July before rising by 185% to N173.2 billion in August.
Repurchase orders (repo), a short-term agreement to sell securities and then buy them back at a slightly higher price that banks also employed to control temporal illiquidity, saw a 55.5 percent decline in activity last month. In August, the repo market was worth N1.36 trillion.
The three-month transaction was N6.08 trillion after repo transactions in June and July were N1.65 and N3.07 trillion, respectively.
Excess overnight deposits (SDF) increased in August, but the banks’ exposure to repo and SLF decreased. The patterns indicate that either banks were more risk averse or deposit mobilization increased.
Credit information from last month is not available. But as of July, the nation’s net domestic credit had increased 23% year to date (YTD). As of December 2021, the amount was N48.76 trillion, but it increased to N59.96 trillion.
In the period, credit to the private sector showed a somewhat sluggish rise compared with credit to the pulic sector. As the gap between the two major categories of credit is rapidly shrinking, credit given to the government saw a growth of 45% over the previous seven months, reaching N20.09 trillion as of July.
With the expansion, 34% of banks’ loan portfolios are now exposed to the public sector. This suggests that the government and its related institutions hold around one-third of commercial loans.
Although the amount of credit granted to the private sector rose during the time as well, the expansion was slower. From N34.92 trillion in December 2021 to N39.87 trillion in July, the sum increased.