Loans from the Central Bank of Nigeria (CBN) to commercial banks operating in the country has soared to N9.85 trillion in 11 weeks due to illiquidity in the economy, LEADERSHIP checks have revealed.
It was also gathered that the increase in borrowings by the banks may have been triggered by demand for funds to participate in the special foreign exchange (FX) auctions conducted by the apex banking regulating body.
Aftermath of its new foreign exchange policy and $600 million injection into the market, banks were to provide the Naira equivalent of dollar purchases from the CBN.
Our investigations, using the Standing Lending Facility (SLF), further revealed that the commercial banks had in January borrowed N3.54 trillion, with an average amount of N160.9 billion. The highest and lowest amount commercial banks borrowed from CBN in January was N184.7 billion and N83.6 billion respectively.
According to data obtained by LEADERSHIP, the SLF appreciated by seven per cent to N3.29 trillion in February and in 13 days ended March 17, it moved to N3 trillion, even as for the first week in March, the CBN borrowed banks N651 billion in total sum, which moved to N1.13 trillion and N1.24 trillion in second and third week respectively.
While banks use the CBNâ€™s SLF to support their liquidity shortfalls and meet trading obligations on short term basis, finance experts told our correspondents that CBNâ€™s lending to banks had increased of recent on the heels of illiquidity in the economy.
A source at CBN disclosed that the N9.85 trillion is a cumulative figure. â€œSLF is like overnight borrowing at which those funds are returned the following day. It does not mean CBN borrow banks N9.85 trillionâ€, he said.
Commenting on the triggered borrowing of commercial banks from CBN, the Managing Director, Highcap Securities Limited, Mr. David Adnori, said, â€œWhen banks go to the CBN, it means they have some projects they want to finance but the funds are not enough. So, they access funds from the CBN through the SLF.
â€œWhen banks have undergone that project in days, they will start paying CBN principal and interest; that is how CBN makes its own income. The SLF is not meant to finance banksâ€™ foreign exchange request. Banks are supposed to request foreign exchange on behalf of their customers but if banks are borrowing from CBN for themselves through the SLF, then that might lead to round tripping.
â€œWith the increased borrowing in SLF, I want to think it is high time CBN organised a transparent and competitive foreign exchange market where the true state of naira will be determined. The CBN is still doing the allocation, which means Nigeria economy is yet to have a fair competitive market. It is the duty of the market forces to determine the price based on supply and demand.
â€œThe CBN weekly allocation of foreign exchange is unfair. The market is not competitive. CBN still allocate foreign exchange to Bureau de Change (BDC) operators in a country manufacturers need foreign exchange allocationâ€, he further explained.
The apex bank last week, however, continued to intervene in the currency space, selling a total of $250 million in currency forwards on the interbank market through commercial lenders.
Aside the usual daily intervention of $1.5 million, the CBN also approved additional 10 BDC operators â€“ bringing the total number to 3,124 â€“ partaking in the weekly $25 million auction held by the International Money Transfer firm, Travelex, at N381 per dollar.
Meanwhile, as the economic fortune of the country begins a gradual turnaround for good, available credit from the financial market to the public increased in the first quarter of the year, a report by the Central Bank of Nigeria has revealed.
According to the apex bankâ€™s Credit Condition Survey for the first quarter of 2017, availability of secured credit to households increased in the period under review and is expected to increase further in the second quarter of the year.
The report cited the changing economic outlook as a major factor behind the increase, even though it revealed that demand for secured lending for house purchase declined in the first quarter of the year.
Banks also reported that the availability of unsecured credit to household as well as overall availability of credit to the corporate sector increased in Q1, 2017 and both are expected to increase further in Q2, 2017.
The report noted that the major factor contributing to increased credit availability is anticipation of a brighter economic outlook.
Although demand for secured lending for house purchase decreased in the first quarter of the year, it is also expected to increase in the next quarter. Due to lenders stance in tightening the credit scoring criteria in the current quarter, the proportion of loan applications approved in Q1, 2017 decreased.
Demand for total unsecured lending from households decreased in the current quarter, but was expected to increase in the next quarter. Due to lenders stance on tightening the credit scoring criteria for granting total unsecured loan applications, the proportion of approved households total loan applications decreased in the current quarter and was expected to decrease further in the next quarter.
Banks reported increased demand for corporate credit across all firm sizes in Q1, 2017 except from the OFCs. Lenders also expect increased demand across all firm sizes in the next quarter. Following the widen spreads between bank rates on all firmsâ€™ size businesses (except the small businesses) and MPR, the proportion of loan applications approved for medium and large businesses decreased in Q1, 2017.
As measured by default rates, secured loan performance as well as unsecured loan performance improved in the quarter under review, just as banks say they expect lower default rates in the next quarter. Corporate loan performance likewise improved across all firm sized business in the current quarter as default rates on lending to small, medium and large PNFCs was lower in the current quarter.
Banks also reported that spreads on credit card lending widened in Q1, 2017 and were expected to widen further in the next quarter. Similarly, spreads on overdraft and personal loans widened in the current quarter and were expected to also widen in the next quarter.
Changes in spreads between bank rates and MPR on approved new loan applications to the medium and large PNFCs and other financial corporations (OFCs) widened in Q1, 2017. Similarly, spreads on loans to all size businesses were expected to widen further in the next quarter.