Commercial banks borrowed a total of N19 . 64tn from the Central Bank of Nigeria in 2019 , an increase of 73 per cent from the N11 . 36tn borrowed in 2018 .

This has raised concerns among analysts following the rising liquidity problems in the financial services sector.

This happened barely one month after the World Bank warned the CBN against supporting undercapitalised banks indefinitely .

According to the apex bank ’ s financial data analysed by Sunday PUNCH , commercial banks through the CBN Standing Lending Facility window borrowed N7 . 43tn between July and December 2019 as against N4 . 5 tn borrowed in 2018 , an increase of 65 per cent .

The analysed data revealed that banks borrowed N8 . 66 tn from the regulator in the first quarter of 2019 ; N3 . 55tn in the second quarter ; N6 . 11tn in third quarter ; and N1 . 3 tn in the fourth quarter .

Top bank executives told one of our correspondents that commercial banks and merchant banks continued to access the CBN SLF window to square -up their financial position in 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 less challenges .

Meanwhile , 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 .

The report further showed that during the fourth quarter of last year , the commercial banks borrowed N2 . 8 tn from the CBN , representing a 29 per cent decline from N3 . 96tn borrowed in the fourth quarter of 2018 .

Sunday PUNCH ’ s findings showed that the commercial banks during the fourth quarter of 2019 reduced borrowing from the apex bank and focused more on the LDR deadline which mandates them to give soft credit to key sectors in the economy .

According to financial experts , although the data revealed that banks borrowed more funds from the regulator in 2019 , compared to 2018 , most of those borrowings appear to have come from small and mid – size banks experiencing liquidity problems

More borrowing, sign of liquidity problems in smaller banks – Experts
The Chief Economist /Head , Investment Research of PanAfrican Capital Holdings , Mr Moses Ojo, 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.

He said, “ The factors that accounted for this is mainly the low level of liquidity of some of the commercial banks in the country.

“ While some of the operators have a strong liquidity base , while others are struggling . “ The operators in this category are mostly in the third -tier class in the banking sector . ”

He explained further that , “ The weaknesses in the liquidity base of these operators led to them to be seeking cover from the regulator during the period . ”

The Managing Director , Highcap Securities Limited , Mr David Adnori , attributed the development to the banks lending to the real sector and customers , which eventually impacted on credit to private sector that closed November at N26. 41tn from N25. 8 tn reported in October .

According to him, since the rate of borrowing from the CBN around 15. 50 per cent and lending to customers at 30 per cent , the margin to commercial bank seems lucrative and profitable .

He said , “ Commercial banks are the major ones accessing the SLF window . They borrow from the CBN and on -lend it to their customers and the real sector.

“ Take for instance , the commercial banks borrow funds through the SLF window at 15 . 50 per cent and lend it to their customers at the range of 25 -30 per cent . These commercial banks have made a profit margin of eight per cent which is a profitable business. ”

Also commenting , a research analyst at Investment One Financial Services Limited , Mr Abayomi Ajayi , said the 73 per cent increase in the SLF last year was due to the liquidity challenges in the sector.

He said , “ The increase may have been the impact of the prevailing liquidity conditions in the banking system witnessed in 2019 . ”

Ajayi added, “ As we know, the CBN retained its tight stance on monetary policy in its bid to maintain price stability and check inflation .

“ Most of the lending from the CBN would have gone to tier II banks as they felt the brunt more during the period . ”

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

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

The World Bank had said , “ The CBN gave liquidity support to four medium- sized banks that were severely undercapitalised, without requiring hard time -bound recapitalisation plans .

“ Going forward , asset quality needs to be closely monitored because it may deteriorate if the CBN continues to exercise regulatory forbearance for undercapitalised banks .

“ Banks are performing better , but asset quality needs to be monitored closely . ”
Top officials of the CBN confided in our correspondent on Friday that the apex bank needed to support the small -sized bank.

Source:- Punchng