Kayode Tokede
Following the push by the Central Bank of Nigeria (CBN) to stimulate lending to the real of the economy, banks in the last 11 months of 2021 deposited just N2.5 trillion with the central bank, the lowest recorded in last 10-year, THISDAY investigation has revealed.
Banks through the Standing Deposit Facility (SDF) on daily basis deposit excess funds with the central bank at an applicable interest rate of 4.5 per cent at an asymmetric corridor of +100/-700 basis points around the 11.5 per cent MPR.
SDF is a monetary policy operation used by central banks around the world to absorb deposits from banks, without involving the use of government securities as collateral in return.
THISDAY investigation revealed that in the last 11 months of 2021, banks deposited less at the SDF window, due to the liquidity condition and demand to meet the 65 per cent Loan-to-Deposit (LDR) requirement of the CBN.
The CBN had in July 2019 directed that banks daily deposits placement through its SDF should not exceed N2 billion, stressing that any daily deposits above the stipulated amount will not attract interest payments.
According to THISDAY investigation, banks’ deposit with CBN in 11 months of 2021 stood at N2.5trillion, a decline of 56.6 per cent per cent from N6.51trillion recorded in 11 months of 2020.
In 11 months of 2019, banks’ deposit with CBN was N10.92 trillion, while in 11 months of 2018 and 2017; it was N34.05 trillion and N7.77trillion respectively.
The CBN had in its 2019 guidelines noted that the N2billion deposit represents 73 per cent reduction from the previous limit of N7.5 billion introduced way back in 2014.
In November 2014, the CBN said it observed that banks and discount houses preferred to keeping their idle balances in the SDF with the CBN.
Unfortunately, this preference contributed to the restraining of the financial intermediation process, the reason the CBN opted to review the guidelines for the operation of the standing deposit facility.
The review recommended that daily placements by discount houses and banks at the SDF should not exceed N7.5 billion.
Commenting, the head of research, PanAfrican Capital Holdings Limited, Mr. Moses Ojo said the SDF policy of the CBN has achieved its purpose in banks’ lending to real sector, stressing that it has strengthened Tier-1 banks lending to key sectors of the nation’s economy.
He stated that although some of the banks might not meet the 65 per cent LDR, yet they control a huge percentage of lending to the real sector.
He added that: “If some of these Tier-1 banks are not meeting the 65 per cent LDR of the CBN, it actually means they are not ready to lend. Mind you, they had raised important points that include the risk in lending. They consider hike in bad loans and making provision in case any loan goes bad. To a certain extent, I think the SDF policy of CBN actually worked in driving banks lending to the real sector.”
On his part, the Managing Director, Highcap Securities Limited, Mr. David Adnori said the policy has not completely driven banks lending to the real.
According to him: “The banks were investing in government bonds and Treasury bills rather than lending to the real sector. The federal government is aggressively issuing bonds and T-Bills to finance budget and it is where banks are investing.”
He added that: “It is noted that interest income of the banks decline as the rate on T-bill and bonds dropped for the first six months of this year. If banks had granted loans to real sector as directed by CBN, they could have charged higher interest and generated more money.
“Mind you, the risk of lending to the real sector is high even though the CBN wanted them to lend. Most of the banks are very sceptical lending to the real sector. The SDF policy introduced in 2019 is a very good policy but unfortunately, the operating environment does not support its impact.”
Analysts at CSL Stockbrokers Limited in a report had said, “In our view, measures such as these fail to address the fundamental issues behind banks’ reluctance to lend and would only result in banks looking for innovative ways to get around the rules.
“The low-risk appetite among banks for lending to the real sector can be attributed in no small measure to the high risks in the operating environment which hinders the survival of SMEs and the profitability of businesses in general. Also, the absence of reliable credit history and effective institutions also hinder banks from lending to the real sector.
“Consequently, banks prefer investing a huge chunk of their liquid assets in government instruments given that they do not have Capital Adequacy Ratio (CAR) implications, are tax-free and do not result in Non-Performing Loans (NPLs)”
The bank had when issuing the guideline said, “With reference to the circular to all banks and discount houses, Re: Guidelines on accessing the CBN Standing Deposit Facility, Ref: FMD/DIR/GEN/CIR/05/020 and dated November 6, 2014, after further review, the remunerable daily placements by banks at the SDF shall not exceed N2billion.
“The SDF deposit of N2billion shall be remunerated at the interest rate prescribed by the Monetary Policy Committee from time to time. Any deposit by a bank in excess of N2billion shall not be remunerated. The provisions of this circular took effect on July 11, 2019.”
