Due to a lack of cash in the financial system, Nigerian banks have taken a record N1.2 trillion loan from the Central Bank of Nigeria (CBN) through its Standing Lending Facility (SLF) to keep their operations running, according to TrustBanc Financial Group Limited.
The banking sector is facing a major liquidity shortage, with a deficit of N266.55 billion as of Thursday, February 6, compared to an excess of N201 billion earlier in the week.
This cash shortage is mainly due to large withdrawals linked to the CBN’s financial auctions. Also, there was an unreported foreign exchange (FX) swap settlement.
Experts say it is common for liquidity levels to rise and fall, depending on banks’ demand for government securities and their related investments, which can quickly affect cash availability and interest rates.
As trading started, the financial system was already short of N266.5 billion due to increased financial commitments. This led banks to rely on the SLF, withdrawing a record N1.2 trillion in a single day.
The tight liquidity situation pushed interbank lending rates (OPR & O/N) up by over 340 basis points, closing at 31.50% and 32.00%, respectively. TrustBanc analysts predict these rates will stay high given the current cash shortage.
Earlier this year, the CBN reported that liquidity problems forced commercial and merchant banks to borrow N8.2 trillion from the central bank within the first 17 days of January 2025.
During this period, banks and merchant banks had deposits of N6.69 trillion with the CBN, even as they tried to increase lending to the real sector.
Banks can borrow short-term funds from the CBN through the SLF to manage daily operations.
They can also deposit extra cash with the central bank using the Standing Deposit Facility (SDF).
Source: www.legit.ng
