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Banks borrow N9trn from CBN in 1st Quarter

By Babajide  Komolafe
LAGOS — BANKS borrowed N9 trillion from the Central Bank (CBN) to fund their operations in the first quarter of this year. This comprises N7.89 trillion through the Standing Lending Facility and the balance of N1.11 trillion through the expanded window.

The CBN in its economic report for the quarter said, “Due to the liquidity unease that pervaded the banking system in the review quarter, the volume of lending by the Bank remained high as deposit money banks and discount houses accessed the facility on a daily basis.

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However, the total lending facility granted to deposit money banks and discount houses declined to N7.891 trillion, from the N9.366 trillion in the fourth quarter, 2008.

The development was attributed to the market players’ preference for the Expanded Discount Window Facility, which accommodates variety of instruments and affords them longer tenor.

The maximum spread on the 90-day and 360-day tenor at the Expanded Discount Window was pegged at 195 and 500 basis points above the prevailing MPR, in March, 2009.

“Meanwhile, the eligible financial instruments used as collateral at the discount window included Bankers’ Acceptances (BAs), Guaranteed Commercial Papers (CPs) and Promissory Notes, among others.

”Thus, the total amount injected through the medium as at March 2009 stood at N1.110.06 trillion, compared with N879.10 billion at end-December 2008,” the report added.

The global financial crisis triggered a liquidity crisis in the banking industry in the second half of 2008. To ameliorate the impact of the crisis, CBN rolled out a number of measures aimed at injecting liquidity into the industry.

Hence since last September, banks have depended on the apex bank as the lender of last resort.

The CBN report indicated that the impact of the global financial crisis on banks persisted in the first quarter of the year while asset/liabilities and foreign assets fell significantly.

The report said, “Total specified liquid assets of the DMBs stood at N3.123 trillion, representing 35.6 per cent of their total current liabilities.”

At that level, the liquidity ratio rose by 3.0 percentage points over the preceding quarter’s level, but was 4.4 percentage points below the stipulated minimum ratio of 40.0 per cent.

The loans-to-deposit ratio fell by 1.4 percentage points to 86.6 per cent from the level in the preceding quarter, and was 6.6 percentage points above the prescribed minimum target of 80.0 per cent.”

“Provisional data indicated contraction in monetary aggregates in the first quarter of 2009. Broad money supply (M2) and narrow money (M1) fell by 1.9 and 3.9 per cent to N8.997 trillion and N4.666 trillion, respectively, as against the increase of 2.3 and 7.4 per cent in December 2008.

The decline in M2 was attributed to the 5.2 per cent fall in foreign assets (net), reinforced by the 2.6 per cent contraction in credit to the domestic economy .

“At N4,820.8 billion, aggregate banking system credit (net) to the domestic economy declined by 2.6 per cent in the first quarter of 2009, in contrast to the increase of  16.7 per cent in the preceding quarter.

The development reflected wholly the 9.6 per cent fall in claims on the Federal Government. Banking system’s credit (net) to the Federal Government declined by 9.6 per cent to negative N3.405.6 trillion, as against the increase of 3.8 per cent in the preceding  quarter.

The fall was attributed to the decline in CBN and DMBs’ holding of Federal Government securities. Banking system’s credit to the private sector rose by 2.1 per cent to N8. 226 trillion, compared with the increase of 7.8 per cent in the preceding quarter. The rise reflected largely the 1.5 per cent increase in bank’s claims on the sector”


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