Due to tight financial system liquidity in recent times, the average monthly borrowing by Deposit Money Banks (DMBs) has reached N316.68 billion.
According to industry sources, there have been increasing borrowing by banks at the
Standing Lending Facility (SLF) window observed at a monthly average of N316.68 billion in April compared to N249.74 in March and N224.57 billion in February.
This means that of recent, more banks are depending on the apex bank loans to meet their cash obligations, following the lack of liquidity in the banking system.
Banks access the SLF to borrow from the CBN while they access the Standing Deposit Facility (SDF) to place deposit with the CBN.
Analysts this week, expect Standing Lending Facility (SLFR) Rate and Standing Deposit Facility Rate (SDFR) to be retained at +2 per cent and -5 per cent respectively.
Presently the CBN charges five per cent as interest rate on loans to banks through the SLF while it pays two per cent as interest on deposit placement through the SDF.
Dealers said that at the start of last week, financial system liquidity settled at a deficit of N51.9 billion implying a N39.6 billion moderation from the previous Friday. Hence, they expect the Cash Reserve Ratio requirement to be reviewed downwards by 250bps from 22.5 per cent to 20 per cent on account of persistent liquidity strain in the financial system, occasioned in part by crowding out effect of increased public sector borrowing to fund the fiscal deficit and which may have resulted in difficulty for lenders to fund foreign exchange demand of end users.
Meanwhile, overnight lending rate dropped to 26 per cent on Friday from 65 per cent a day earlier after the central bank refunded excess naira offered in an earlier dollar sale to commercial lenders, injecting liquidity back into the money market.
Traders said that a cash squeeze on the money markets on Thursday after lenders provided naira to participate in a central bank currency intervention had pushed the overnight rate sharply higher.
The banking system’s cash balance with the central bank stood at 24.61 billion early on Friday before the central bank refund.
“We see rates easing further next week. We anticipate that about N200 billion would be disbursed to government,” one currency trader said.
The central bank sells hard currency regularly on the interbank market to boost dollar liquidity but in turn mop-up the naira. If it does not take up all offers, the excess naira is returned to lenders. Mired in recession, Nigeria is grappling with a currency crisis and dollar shortage brought on in part by the low price of oil, the cornerstone of Africa’s largest economy.
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