Liquidity Challenges: Banks and Others’ Borrowing from CBN Surges 436% to N53.7 Trillion

Amid liquidity challenges in the financial sector, banks and merchant banks have significantly increased their borrowing from the Central Bank of Nigeria (CBN). The total borrowing reached a staggering N53.7 trillion in the first five months of 2024, representing a remarkable 436% year-on-year growth compared to the N10.02 trillion borrowed during the same period in 2023. This surge in borrowing reflects the ongoing economic pressures and the need for financial institutions to meet their daily obligations.

The Borrowing Trends

Banks and merchant banks have consistently turned to the CBN for liquidity support. The borrowing occurs through the Standing Lending Facility (SLF) window, which provides short-term loans for day-to-day operations. Despite the removal of the cap on remunerable Standing Deposit Facility (SDF), banks have also deposited funds with the CBN.

Analyst Perspectives

Experts attribute the increasing borrowing trend to several factors, including the dwindling naira in the foreign exchange market, rising inflation rates, and the CBN’s efforts to mop up excess liquidity in the financial sector. While borrowing from the CBN provides short-term relief, it also underscores the need for sustainable liquidity management strategies.

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