In the first 17 days of January 2025, Nigerian commercial and merchant banks took out a sizable loan of N8.2 trillion from the Central Bank of Nigeria (CBN). This substantial borrowing highlights the financial sector’s continuous liquidity issues, especially in the wake of the holiday season.
The latest borrowing is less than the N131.42 trillion borrowed during the same period in 2024, but it still shows how important it is for banks to keep sufficient reserves to operate their operations and satisfy consumer needs. Banks’ liquidity situations were impacted by the large cash outflow from the banking system caused by the holiday season’s increased spending.
“The move, according to data provided by the apex bank, was part of efforts to tackle liquidity challenges in the financial sector and boost lending to the real sector of the Nigerian economy,” the CBN stated in a release.
The CBN’s Standing Lending Facility (SLF) serves as the primary avenue for banks to access short-term liquidity. This mechanism allows banks to borrow funds at a predetermined interest rate to manage daily operational needs and fulfil customer obligations.
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In 2024, the borrowing from the CBN reached a staggering N131.42 trillion, a substantial increase from the N17.84 billion borrowed in 2023. This surge reflects the growing demand for liquidity within the banking system, driven by factors such as increased economic activity and the evolving needs of the Nigerian market.
“Specifically, about N21.74 trillion was borrowed by banks and merchant banks in March 2024, while the lowest amount of N2.9 trillion was borrowed in January 2024,” the CBN data revealed.
It’s crucial to note that the CBN also provides a Standing Deposit Facility (SDF) for banks to deposit excess liquidity. This mechanism allows banks to earn interest on surplus funds while supporting the overall stability of the financial system.
The CBN’s role in managing liquidity within the Nigerian banking sector is paramount. By providing access to both lending and deposit facilities, the apex bank plays a crucial role in maintaining a stable and efficient financial market.
