Banks Borrow ₦19.6tn From CBN Despite World Bank Warning


The Nigerian commercial banks have borrowed a total of N19.64 trillion from the Central Bank of Nigeria (CBN) in 2019, indicating an increase of 73 percent from that of 2018.

The development has raised concern amongst analysts as a liquidity problem in the financial sector has continued to rise.


Barely last month the World Bank has warned the CBN against supporting the undercapitalized banks indefinitely.


According to the CBN financial data analysis by Sunday PUNCH, through the CBN lending facility, the commercial banks have borrowed N7.43 in between July to December, 2019 as against N4.5tn as compare d to year 2018 an increase estimated to be  65 per cent.


The data revealed the banks borrowedN8.66tn from the apex bank in the first quarter of 2019; N3.55tn in the second quarter; N6.11tn in the third quarter and N1.3tn in the fourth quarter.


A source amongst the bank executives disclosed that commercial banks and merchant banks have continued to access the CBN SLF window to square-up their financial position in the year 2019.


The trend at the CBN’s SLF window showed more patronage while the Standing Deposit Facility declined as commercial banks strive to meet the regulator’s 65 per cent Loan to Deposit Ratio policy.


The SLF is the regulator window through which commercial banks access funds from the CBN to carry out their business activities and meet obligations that are falling due while the  SDF means commercial banks deposit with the apex bank.


According to financial services executives, banks with more liquidity problems appear to frequent the CBN SLF window than those with fewer challenges.


Although, the Monetary Policy Committee in March 26, 2019 voted to reduce Monetary Policy Rate to 13.5 per cent from 14.00 per cent, applicable to the  SLF interest rate of 15.50 per cent as against 16 per cent  in 2018.


Mr. Moses Ojo, The Chief Economist/Head, Investment Research of PanAfrican Capital Holdings, attributed the increase in the SLF to the low liquidity of some of the commercial banks.


He noted that most tier-three commercial banks had borrowed heavily from the apex bank to square up their daily business activities.


The World Bank had warned that the assets of the commercial banks might deteriorate if the apex bank continued to support undercapitalised banks.


However, there are strong indications that despite the World Bank’s warning, the CBN may continue to support undercapitalised banks.


The World Bank gave the warning in its latest Nigeria Economic Update.


In the report, the World Bank advised the CBN to monitor the quality of the assets of Nigerian banks ‘closely’.


The World Bank specifically expressed reservations about the manner in which the CBN extended liquidity support to four undercapitalised banks.


However, the CBN said the banking sector remained strong despite the reported weaknesses in some banks.


The Director, Corporate Communications Department, CBN, Mr Isaac Okorafor, told one of our correspondents that despite the reported weaknesses in some small-sized banks, the Nigerian banking sector remains stable, safe and sound.


According to him, the weak banks’ assets collectively represent less than five per cent each of the assets, deposits, and credit of the banking industry. (PUNCH)