BY JIDE AJIA
Indications have emerged that liquidity challenges and rising bad loans have dragged down commercial banks deposit with Central of Nigeria (CBN) by 54 per cent to N367 billion in August.
Sources said that despite the low interest rate, commercial banks including merchant banks, in the prior month, used Standing Deposit Facility (SDF) to deposit N781.7 billion with the apex bank.
SDF is a lower corridor of the monetary policy rate of the CBN at which deposit money banks and discount houses use to deposit money overnight for an interest rate.
However, commercial banks continued to access the Standing Facilities window to square-up their positions, depositing excess liquidity in their reserves at the end of each business day.
By the subsisting decision of the Monetary Policy Committee (MPC), applicable rates for SDF remained nine per cent, even as investigation conducted by The Guild on Tuesday, indicated that commercial banks consistently deposited an average sum of N41.11 billion in July, with the deposit ranging between N500 million and N84billion.
In August for instance, it was gathered that lowest deposit of commercial banks was N88 million while the highest deposit reported by CBN on the first day was at N86 billion.
The low patronage by banks was to make up their positions in lending credit facility to the real sector of the economy, as some were hit hard by persistent liquidity mop up, while majority were investing in Treasury Bills (T-Bills) and bonds’ auctions.
Further checks revealed that the Standing Lending Facility of the CBN amounted to N5.6 trillion in August as commercial banks leveraged on the lending facility to provide liquidity for overnight transactions.
Analysts attributed drop in deposit with CBN to increased impairment by commercial banks while other stressed that the private deposit investment in Government securities (T-Bills and Bonds) have drain banks liquidity.
Some analysts explained to The Guild that commercial banks are divesting in Treasury Bills rather than borrowing to finance foreign exchange market transactions and key sector of the economy.
They added that closed gap between parallel and official market rates have discouraged commercial banks serious participation in the foreign exchange market, over CBN’s weekly intervention.
The Managing Director of finance and investment management firm, Cowry Assets, Johnson Chukwu, said, banks deposit of recent has moved from CBN to federal government instruments.
Chukwu further disclosed that the commercial banks were likely to have opted for government bonds because a lot of deposits have moved from CBN to government securities, even as decline in SDF shows that liquidity in banking industry is at flat.
He stressed that asides, the CBN has been debiting banks with special treasury bills sales which a keen to stabilization of liquidity and therefore withdraw from banks deposit.
Commenting also, the Head, Research and Strategy at GTI Securities, Chucks Anyanwu, said Non-Performing Loan (NPL) in the banking sector increased in half year of 2017, stressing that banks are making huge provision for NPL.
He further explained that banks are in need of liquidity because a lot of them have taken provision for NPLs-NPL have affected banks books; the rate at which commercial banks borrow from CBN is on high while deposit continued to drop.
“it is obvious that banks have been active at the inter-bank market, mopping up liquidity from everywhere because there has been major hit in their books due to increased NPL”, Anyanwu said.
However, analysts at Cordros Capital, a Lagos based securities company, said, it expects demand to rebound, supported by expected improvement in system liquidity (N559.47 billion from Open Market Operation (OMO) repayment, in addition to Federal Accounts Allocation Committee (FAAC). inflow, notwithstanding continued liquidity mopping actions of the central bank — via OMO and foreign exchange sales — as yields remain attractive.