Banks’ average daily loan requests from the Central Bank of Nigeria (CBN) stands at N216.34 billion due to the apex banks’s tough monetary policy, according to a CBN’s Financial Market Department Annual Activity Report.
The Monetary Policy Rate (MPR) – benchmark interest — has remained at 14 per cent since July 2016 despite rising calls from economic experts for a lower interest rate. This has raised banks’ demand for CBN’s loans to boost their liquidity.
The loans, which came as Standing Lending Facility (SLF), were for each of the 246 days captured in 2017, out of which Intra-day Liquidity Facility (ILF) conversion was N130.63 billion, representing 60.38 per cent of the total request.
The report released at the weekend, showed the average daily interest charged was N159.96 million.
The SLF and SDF were available for market participants to square up their positions or invest excess funds at the close of business. Similarly, Intra-day Liquidity Facility (ILF) was accessible as temporary credit to the banks to meet their funding needs within the operating hours of the CBN Inter-bank Funds Transfer System (CIFTS).
The report signed by CBN Director, Financial Markets Department, ALvan Ikoku, attributed the bank’s rising borrowing from the CBN to tough monetary policy measures, which kept the Monetary Policy Rate (MPR)-benchmark interest rate at 14 per cent throughout the year.
“In 2016, the average daily request for SLF was N130.47 billion in 207 days, out of which ILF conversion was N84.62 billion, while average daily interest income was N94.76 million. The higher patronage at the window in 2017 reflected the effect of the tight monetary policy stance,” it said.
Ikoku said banks requested the standing facilities to square-up their positions by borrowing from the CBN (SLF) or depositing excess funds (SDF) at the end of each business day. “The trend at the window showed more frequent recourse to the SLF, than in 2016 due to the tight monetary policy stance. The threshold for daily deposits per institution at the SDF remained N7.5 billion in the CBN thrust to curtail unbridled requests by market participants and encourage lending to the economy. Applicable rates for the SLF and SDF also remained 16 and nine per cent. The rates were anchored to the MPR,” it added.
According to the report, patronage at the SDF window declined to an average daily amount of N41.90 billion for the 230 days in 2017, from N76.11 billion for the 246 days in 2016.
It said the average daily interest payments on the deposits decreased to N14.86 million in the review period, from N20.01 million in 2016. The reduced volume of transactions in the year was due to tight monetary operations and the sale of foreign exchange to authorized dealers.
“Liquidity management was conducted through the use of Open Market Operation (OMO) as the main instrument of monetary policy, complemented by discount window activities, CRR and interventions in the foreign exchange market,” it added.
The financial market report said the challenge of curtailing inflation, promoting increased capital inflows and restoring the economy to the path of growth was paramount in the bank’s policy mix.
“In continuation of the contractionary monetary policy stance, the thresholds of the monetary policy instruments showed that MPR was retained at 14 per cent, with an asymmetric corridor of+200/-500 basis points for the Standing Lending Facility (SLF) and Standing Deposit Facility (SDF), respectively.
In addition, the CRR and Liquidity ratios remained 22.50 and 30.00 per cent, respectively,” it added.
It said the liquidity levels in the banking system were influenced by periodic fiscal injections (comprising Statutory Revenue Allocation (SRA), Value Added Tax (VAT), non-oil revenue and the refund of the Paris Club deductions, amongst others).
The report said withdrawal of naira by the CBN through the sale of foreign exchange drained liquidity further and pushed market rates upwards.