By Babajide Komolafe

Banks deposited N613 billion idle funds with the Central Bank of Nigeria last week, indicating apathy for lending to each other in the interbank market. Vanguard investigation  revealed that the amount of idle funds banks deposited with the CBN, through its Standing Deposit Facility (SDL) rose by 23 per cent last week from N498 billion the previous week to N613 billion last week.

Emefiele CBN Governor

Meanwhile, the CBN lending to banks, through its Standing Lending Facility (SLF) rose sharply by 97.9 per cent to N102.89 billion. This, according to Cowry Asset Management Company, indicates that banks with idle funds are unwilling to lend to banks in need of funds.

Presently, the CBN pays 7.0 per cent interest rate on deposit from banks, while it charges 14 per cent on lending to banks. The interest rate paid by CBN on banks deposit is limited to maximum of N7.5 billion deposit per day. Hence the apex bank doesn’t pay interest rate on deposit above N7.5 billion.

According to a market analyst, who spoke to Vanguard on condition of anonymity, banks still prefer to place their idle funds with CBN despite the N7.5 billion daily limit due to the low interest rate in the interbank market.

Last week, interest rate on overnight lending in the interbank market rose to 6.2 on Thursday before falling to 3.2 per cent at the close of business on Friday. This implies difference of 3.8 per cent when compared with the 7.0 per cent banks earn as interest rate when they place idle funds as deposit with CBN. Hence it is more profitable for banks to deposit their idle funds with the apex bank than lend to each other.

From October, 2014 to September, 2015, banks earned N10.3 billion as interest on idle cash placed as deposit with the CBN. This was however 62 per cent lower than the N27.25 billion earned in the preceding period from October, 2013 to September, 2014.

Vanguard analysis of various Quarterly Economic Reports of the CBN revealed sharp reduction in the amount of idle cash placed as deposits with the CBN from October, 2014 to September, 2015. Analysis revealed that idle cash placed as deposits with the CBN by banks during this period fell by 70 per cent to N24.77 trillion from N81.85 trillion in the preceding 12 months period from October, 2013 to September, 2014. However, the amount of money borrowed by banks from the CBN through the SLF rose by 33 per cent to N6.86 trillion from N5.14 trillion.