‘Banks deposit with CBN decline amid increase in lending to real sector’

Commercial banks deposit with the Central Bank of Nigeria has declined significantly this year amid enforcement policy to lend to the nation’s real sector.

Although, a financial expert who exclusively spoke with the FiancialStreet.ng explained that the drop in the Standing Deposit Facility with CBN by Deposit Money Banks between eight months of 2018 and eight months of 2019 could be traced to the new CBN’s policy that reduces the cap on remuneration to be paid on daily SDF from N7.5bn to N2bn, effective from July 11, 2019.

But in our fact findings, the SDF between July 11 when the CBN introduced a new guideline, titled “Guidelines on access the CBN SDF ” has recorded decline as while the Standing Lending Facility has recorded more patronage.

Our correspondent gathered that between July 11, 2019 to August 31, 2019, banks total deposit with CBN dropped to N720.36bn compared to N3.26tn banks deposit with CBN between July 11 and August 31, 2018.

Further findings revealed that between January and August of 2019, a total sum of N9.33tn was deposited with the CBN as against N28.11tn deposit between January and August of 2018.

In fact, the expert explained that most Tier-II commercial banks had increased deposit with CBN following the decline in Monetary Policy Rate and means to boost liquidity to drive daily business activities.

But the CBN’s policy of July 11 had forced some to reduce deposit with CBN to concentrate on growing Loan-to-Deposit Rate pegged at 60 per cent.

The Monetary Policy Committee on March 26, 2019 voted to reduce MPR to 13.5 per cent from 14.00 per cent.

This reflects on applicable rates for the SLF and SDF to drop to 15.50 per cent and 8.50 per cent from 16 per cent and nine per cent respectively.

Meanwhile, the circular by CBN to all banks noted that “the remunerable daily placements by banks at the SDF shall not exceed N2bn.”

According to circular signed by the Director, Financial Markets Department, Angela Sere- Ejembi, the SDF deposit of N2bn shall be remunerated at the interest rate prescribed by the Monetary Policy Committee from time to time.

She added, “Any deposit by a bank in excess of N2bn shall not be remunerated. The provisions of this circular take effect from July 11, 2019.”

Speaking on this development, the Financial Engineer/Chief Executive Officer at Wyoming Capital & Partners, and a Consultant/Dealer with Valmon Securities Limited, Tajudeen Olayinka said, “This means that any excess liquidity from a DMB above N2bn threshold will attract zero-interest payment from CBN.”

According to him, it is therefore important that DMBs lookout for other attractive alternatives asset classes, in compliance with applicable banking laws and CBN guidelines

“I think it is a follow-up by CBN on its attempt to force DMBs to increase their lending to real the sector of the economy.

“It is really a challenge to the banking sector, in view of noticeable difficulties in the environment of business in Nigeria. Somehow, the banks have to comply,” he said.

Similarly, the Managing Director, Enterprise Securities Limited, Mr Rotimi Fakayejo, said, “This comes with the additional incentive of a weight of 150 per cent to the preferred sectors in the computation of LDR.

He said the impact of the new guideline on SDF would force the banks to carry out their core responsibility of intermediation (the circular capped the preference of banks to keep idle balances at the CBN in the SDF window).

All the analysts who spoke with FinanciaStreet.ng believed that the guideline on SDF was CBN’s aims to improve market liquidity and, subsequently, encourage deposit money banks to increase lending to the productive sector of the economy.

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