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Dwindling economy: Banks prefer CBN excess liquidity to lending real sector

 

Indications are rife that due to the dwindling Nigerian economy, which has increased the level of uncertainties in the business and economic environment, most Deposit Money Banks (DMBs) are not willing to lend to each other and to the real sector of the economy, preferring to place their excess liquidity with the Central Bank of Nigeria (CBN) for interest earning purposes.

The Standing Deposit Facility (SDF), which the banks use to access to place deposit with the CBN, rose by 23.64 percent to N616.13 billion by close of business last week.

According to Cowry Assets Management Limited, the surplus suggestive banks’ unwillingness to lend to one another, with the Standing Lending Facility (SLF) increased by 97.90 percent to N102.89 billion as borrowers (deficit units) borrowed from the CBN official window.

The SLF, which lenders often access to borrow from the apex bank, while they access the SDF to place deposit with the CBN. Presently the CBN charges 15 per cent as interest rate on loans to banks through the SLF while it pays 11 per cent as interest on deposit placement through the SDF.

The CBN had stopped publishing how much banks are making by lacing their excess liquidity as deposit via its Standing Deposit Facility.

However, prior to the stoppage, it will be recalled that in January 2015, that banks earned N27.26 billion as net interest earned from placing their excess liquidity as deposit with the CBN in one year.

Investigations revealed that from October 2013 to September 2014, banks placed N81.85 trillion as deposit with the CBN through the SDF and borrowed N5.14 trillion through the SLF. Further, the CBN paid interest of N32.9 billion on the deposit through the SDF, while it earned interest of N3.68 billion on loans to banks through the SLF.

Subsequent CBN Economic Reports omitted information on how much banks made by placing their money as deposit via the SDF. Rather, the apex bank limited its report to how much it lent to banks via the SLF and how much banks placed as deposit via the SDF.

 

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