There is clearly beyond doubt consent on Nigerian banks healthiness going by the recent media report of over N489billion borrowed by commercial banks from the CBN. Explicable, the Central Bank of Nigeria (CBN) has always maintained that, Deposit Money Bank (DMBs) is resilient, safe, and sound in Nigeria.
In one of the Apex bank statement to the public, through its Corporate Communications Department noted that the “Nigerian banking system had proven to be very sturdy in spite of the global challenges posed by the COVID-19 pandemic”. In addition, the statement states that “in line with the bank’s resolve to ensure adherence to prudential standards, the CBN continues to monitor the activities of banks in order to ensure that no individual or institution breaches the laid down guidelines.” Ultimately, we can fathom this proactiveness of the banker of all banks push to make clarifications on the financial robustness of the Nigerian banking system to avoid public panic.
Meanwhile the statement assured the public by explaining that “routine examination and stress test for financial institutions operating in the country indicated that no licensed DMB was under any form of financial distress. And the banks have adequate capital to absorb unexpected losses”.
In retrospect, banks’ borrowing from the Central Bank of Nigeria (CBN) through the Standing Lending Facility (SLF) fell by 98 percent, year-on-year (YoY), to N15.95 billion in November 2020 from N662.44 billion in November 2019.
Curiously, banks’ borrowing from the Central Bank of Nigeria (CBN) rose to N489 billion in second quarters 2021, whereas, the banks’ deposits with CBN also declined significantly. Nevertheless, banks borrow from the CBN through its Standing Lending Facility (SLF) to fund short term liquidity cash shortfall is a reflection of the intense scarcity of funds.
Interestingly, what is causing the increased borrowing from CBN by banks was driven by the intense liquidity squeeze that prevailed in the interbank money market. Intriguingly, also is that this scarcity of funds originated from huge outflows compared to inflows into the DMBs?
Nonetheless, findings from the CBN’s data release show that while banks’ borrowing through the SLF rose sharply by 174 per cent in April 2021, their deposits with the apex bank through the Standing Deposit Facility (SDF) fell by 57 per cent to N169.74 billion in April from N392.37 billion at the end of March 2021.
Similarly, the one-sided average interest rate for collateralized lending Open Buy Back, (OBB) in the interbank money market rose to 32.63 per cent on April 16, the highest in two years, before retreating to 14.58 per cent in April.
Interestingly, what does the foregoing depicts of the Nigerian banking system today? First, the scarcity of funds dampened confidence in the baking system that has been adjudged by the apex bank as sturdy with resilient, safe, and soundness. Secondly, banks and financial market activities in Nigeria are hampered by pressure of double-digit money market rates. Thirdly, the tight system of liquidity impacted the secondary market for treasury bills as supply outweighed demand leading to decline in average prices while yields went up.
These developments, of banks’ spiral borrowings from CBN can be attributed to the fall out consequent of on purpose monetary policy of the CBN aimed at pushing up interest rates on treasury bills. On the other hand this practice by the CBN is an effort to attract investment and patronage of treasury bills from the public.
Consequently, this stand a reason to be a counter-productive off a sort as it take from one side to reward the other. Giving, this insight, our monetary policies must stand to benefits all irrespective of the angle of investments come from, with an overall positive impact on our strategic national economy interest.
Indeed, the concerns over bank’s borrowing from the Apex bank can be describe as a fault lines that monetarist economist have always preserved to be healthy if well managed. Arguably, this could also mean the ingenuousness of the system to forecast, chiefly, if we consider the structural weaknesses in Nigeria’s economy, and the cunning trait of man.
For the reason that we are in country that grapple, and do not get a clear vision on what the country’s economy hold, monetary policies sometimes do not usually translate to expected desired growth, that why policy in this sector will look like fiction with impute response and reluctance from players and regulator. Either to adhere to rules or abandoned it for another as method of switching to novel ideas trending, even though it may not fit local aspiration but as long as it globally accepted. We jump on the train and this could directly impact the attractiveness of our national economy sector, while we keep bearing the cost.
In due course, however, irrespective of the above divergence, the CBN should defend the Nigerian economy from the monetary policies angle. Interestingly, also analysis, experts and researchers alike must not deviate from advising the apex bank and government to maintain monetary and fiscal policies that would guarantee healthy banking system in Nigeria.
Similarly, the import of monetary policy that has negative shock has become such a habit that affects long-term commitment to we all protecting the Naira it not a matter of debate but practice. Besides, Nigeria needs to use holistic monetary policy to create opportunities and change the narrative around its banking system.
By Adefolarin A. Olamilekan is a Political Economist and Development Researcher. He can be reached at: adefolarin77@gmail.com or 08073814436, 08107407870
