Banks Borrowed N441bn From CBN To Tackle Covid-19 Financial Strain

Deposit Money Banks and merchant banks have continued to access the Standing Facilities window to square liquidity positions in August 2020.

The trend at the CBN standing facilities window showed more
frequency at the Standing Deposit Facility window, due to improved
liquidity in the banking system.

Findings by THE WHISTLER showed that banks took advantage of the situation to scale up operations in the face of the COVID-19 pandemic.

The CBN Standing Lending Facility is an overnight advance available to Deposit Money Banks and merchant banks.

The facility is used by commercial banks to access funds from the CBN to enable them carry out their business activities and meet obligations to their customers.

It is fully collateralized with a margin above the face value of the amount applied for.

For non-Federal Government securities, the apex bank reserves the right to determine the collateral margin after accessing the dating of the instrument.

Based on the apex bank’s guidelines, interest on overnight advance are usually deducted from the advance and the balance credited to the borrower’s current account with the CBN.

The over-riding consideration for the facility is that the lending window should be accessed only on a last resort basis.

Applicable rates for the SLF and SDF remained at 14.5 per cent and 7.5 per cent, respectively.

Investigations showed that the total request for the SLF granted, in August 2020, was N112.73bn, made up of N83.30bn direct SLF and N29.43bn Intraday Lending Facilities.

The daily average amount disbursed under the facility was N9.39bn in 12 transaction days from August 3 to 25, 2020 while total interest earned by the CBN at 14.5 per cent was N60m.

Based on analysis, the total SDF granted during the Month of August, was N441.65bn with a daily average of N25.98bn in 17 transaction days from August 3 to 25, 2020.

According to findings, daily requests ranged from N6bn to N41.40bn.

The apex bank had in recent times lamented that DMBs and Merchant Banks have continued to access the standing facilities window to boost their liquidity positions.

Finance experts have attributed the recent increase in the SLF to the low liquidity of some commercial banks.

They argued that most tier-three commercial banks had borrowed heavily from the Central Bank to boost their daily business activities.

While some of the banks have a strong liquidity base, others mostly those in the third-tier class in the banking sector are struggling.