Bank Borrowing from CBN Drops 76.4% in August as Deposits Surge Amid High Lending Rates

Borrowing by various banks from the Central Bank of Nigeria (CBN) through the Standing Lending Facility (SLF) witnessed a significant decline of 76.4% in August, dropping to ₦4.04 trillion from ₦17.12 trillion in July.

This sharp decline coincides with a notable increase in banks’ deposits within the CBN Standing Deposit Facility (SDF), which surged by 270.7% month-on-month, rising to ₦8.12 trillion from ₦2.19 trillion in July.

The trends indicate that banks are currently holding excess funds that are not being utilized by businesses, likely due to the elevated borrowing rates following the recent hike in the Monetary Policy Rate (MPR).

This situation arises against the backdrop of the CBN’s recent adjustments to SDF rates. The adjustments were designed to reduce the tendency of banks to maintain surplus liquidity at the CBN and to encourage more lending activities.

In a circular issued after the 296th Monetary Policy Committee (MPC) meeting, the apex bank modified the Asymmetric Corridor surrounding the MPR from +100/-300 basis points (bps) to +500/-100 bps. This move was intended to discourage banks from retaining excess liquidity.

Additionally, the CBN has increased the SLF rate, which banks use for short-term borrowing, to 31.75%.

For commercial and merchant banks, the SDF rate for deposits up to ₦3 billion at the CBN has been raised to 25.75%, while deposits exceeding ₦3 billion will now earn a rate of 19%.