Anxiety over rising banks’ borrowing from CBN

BY EMEKA EJERE

A growing culture of apathy among the banking public appears to be taking a dangerous toll on cash deposits across the commercial banks in the country, worsening the lenders’ liquidity challenges in recent time.

This is widely believed to be a cumulative effect of precautionary measures by potential depositors, many of whom now prefer to keep their money at home to avert a repeat of their experience during the recent cash crunch occasioned by the naira redesign and swap policy of the Central Bank of Nigeria (CBN).

The development is compounding the effect of the monetary policy stands of the CBN which many believe are suffocating the banks.
According to reports, over N11 trillion has been debited from commercial banks’ deposits since 2019 for failing to meet CBN’s Cash Reserve Requirement (CRR) and Loan to Deposit Ratio (LDR) policies

Currently, banks are required to leave 32.5 per cent of their liquidity with the CBN, one of the ways through which the apex bank regulates the country’s money supply in or order keep inflationary pressure in check.

Stressed by sustained liquidity pressures in the system, a number of Nigerian deposit money banks (DMBs) have continued to take refuge under the apex bank’s Standing Lending Facility (SLF) to meet their daily cash demand.
In total, Nigerian lenders borrowed more than N1.8 trillion from the apex bank to close gaps in their respective liquidity position as at Thursday April 20 ahead of the Islamic holiday, according to reports.

On the other hand, the balance in the Standing Deposit Facility (SDF) has been swinging to the right.  SLF and SDF are two legs of the discount window facility which help commercial banks to manage short-term liquidity.

The tenure of the facility spans from one business day to the next and it is usually available to businesses between 5.00pm to 6:30pm, while the minimum amount CBN disburses to banks under the SLF is N100m.
CBN accepts Nigerian Treasury Bills, FGN Bonds, CBN Bill among others as securities from banks as part of eligibility criteria. At the opening of the market on January 3, 2023, banks only borrowed N66.63bn from the CBN to offset cash liabilities.

“Depending on banks positions, money managers either deposit excess cash to deposit window or make withdrawals from lending window to manage liquidity profile at a particular time”, analysts told Business Hallmark.

Deposit phobia

Bank customers across Lagos Metropolis who spoke with our correspondent disclosed that they dread depositing cash in banks to avoid a reoccurrence of naira scarcity.

Our correspondent, who visited branches of commercial banks at Ojodu Berger and Ketu areas of Lagos, observed that most of the customers were at the banks to either withdraw cash or lodge complaints, with only a few coming to deposit cash.

Joshua Abayomi, a technician, told our correspondent at First Bank, Ojodu Berger branch, said people are playing safe by keeping the limited cash in their hands for their feeding and transportation in the face of insufficient funds in the system.

He said, “The major challenge is that the cash in circulation is not enough, people don’t have cash to deposit. The little cash we get from the bank is just for feeding and transport, we don’t have cash to deposit. 95% of the people here came to withdraw cash or lodge complaint, no one is coming to deposit cash because access to cash is limited due to the cashless policy,” he said.

Also, Joy Onuoha, a provision store owner, who spoke with our correspondent at the Sterling bank, Ketu branch revealed that shortage of cash was the major cause of the decline in deposits.

“I own a provision store at Ketu Market, customers hardly bring cash to us. Most of them make payments via e-transfer. It’s when you have access to cash that you can deposit cash at the bank. The little cash I make daily is used to attend to basic needs. Due to the difficulty I experienced during the cash crisis, I can’t bear the risk of depositing the little cash I have at the bank,” she stated.

Abiola Oladejo, a businessman, also justified the hoarding of cash, insisting that it does not make sense anymore to deposit his cash in the bank when he would suffer to get it back.
He said, “I don’t want to experience what happened during cash scarcity again. I spent days at the bank trying to withdraw cash and could not succeed after spending days at the bank.

“My business suffered a great loss this period because I had no transport fare to go to my office. It’s absolutely unnecessary to deposit the cash with me in the bank when I would suffer to get my money back,” he said angrily.

Helen Obiora, a trader who owns a food store, said’ “I went through hell to get cash in February. The suffering was too much and uncalled for. Do you know how many lives were lost due to the naira scarcity? Do you know how many families could barely feed? We used money to buy our own naira at exorbitant charges. Once bitten, twice shy. It’s better to keep my money than suffer and starve to get cash.”

Confirming the drop in cash deposits, a staff of First Bank who spoke under unanimity, noted that the liquidity crisis was as a result of the circumstances surrounding the cash crunch.

“Customers are agitated due to the hassle they encountered during the cash crisis in the past months, hence the decline in cash deposits. Nonetheless, I believe with time business would bounce back to its normal state, especially now that there’s cash in the banking system,” he explained.

“The main challenge with the decline in cash deposits is owing to the fact that the cash in circulation is not enough. This can be attributed to the implementation of the cashless policy. Although we have been disbursing cash, but access to cash is not like it used to be. These days, most transactions are done online, 90% of customers come to the banking hall to withdraw cash, lodge complaints on failed transactions and get debit cards,” he added.

Threat to profitability

In an interview with Business Hallmark, an economist, Dr Mike Anyaegbu, cautioned that a situation where banks are no longer sure of deposits from the banking public should not be allowed to linger as it is not healthy for an economy.

“What this means is that one of majors ways through which the banks make money is under threat”, Anyaegbu said.

“The banks sell funds which come from customers’ deposits. But if there are little or no deposits, it then means that the banks are in trouble.

“I think something has to be done urgently to encourage taking money to the banks by individual depositors.”

On October 26, 2022, the apex bank announced that the N200, N500 and N1,000 notes would be redesigned and introduced into the economy from December 15, 2022 while commercial banks were directed to return existing denominations to the CBN.

Data obtained from the CBN’s website revealed that the prime lending rate, which is the interest rate that banks charge their most creditworthy customers, increased to 13.62 percent year-on-year in February 2023 from 13.17 percent in February 2022.

The maximum lending rate, which is the average highest amount charged by banks for lending to riskier sectors, rose to 28.75 percent from 28.14 percent.

The CBN has raised its benchmark interest rate, also known as the monetary policy rate (MPR), to 18 percent from 11.5 percent in May 2022.