In the wake of compliance with the 65% loan-to-deposit ratio (LDR) policy of the Central Bank of Nigeria (CBN), deposits of banks and merchant banks with the umbrella bank fell by 58.14 % in 2021.
Banks and merchant banks, through the Permanent Deposit Facility (SDF), deposit excess funds daily with the umbrella bank at an applicable interest rate of 4.5% according to an asymmetric corridor of + 100 / -700 basis points around the 11.5% monetary policy. Rate (MPR).
SDF is a monetary policy operation used by CBNs around the world to absorb bank deposits, without involving the use of government securities as collateral in return.
THISDAY collected from central bank financial data that deposits from banks and merchant banks fell to 3.3 trillion naira in 2021 from 7.25 billion naira in 2020.
The CBN had in July 2019 ordered that the daily placement of deposits of banks through its SDF not exceed 2 billion naira, stressing that any daily deposit above the stipulated amount will not attract interest payments.
According to THISDAY’s survey, while bank and merchant bank deposits fell during the year under review, borrowings have appreciated considerably.
As collected by THISDAY, bank and merchant bank borrowing from the CBN increased 79.3% to 13 trillion naira in 2021 from 7.25 billion naira in 2020.
This is reflected in the increased reliance of banks and merchant banks on CBN to cope with the intense scarcity of funds, which prevailed in the interbank money market for most of 2021.
The CBN noted in its 2019 guidelines that the deposit of N2 billion represents a reduction of 73% from the previous limit of N7.5 billion introduced in 2014.
In November 2014, the CBN said it had observed that banks and discount houses preferred to keep their unused balances in SDF with the CBN.
Unfortunately, this preference has helped to restrict the process of financial intermediation, which is why the CBN has chosen to review the guidelines for the operation of the standing deposit facility.
The review recommended that discount houses and banks’ daily placements with SDF not exceed 7.5 billion Naira.
Commenting, Mr. Ayokunle Olubunmi, Head of Financial Institution Ratings, Agusto & Co, said: “Because the CBN implements discretionary CRR, banks are cautious in terms of seeking deposits as it has no meaning for you as a bank to get deposits and then the CBN actually holds them. Thus, banks pay attention to deposits.
“2022 is going to be much more drastic if the CBN does not change its position. Because what we saw last year is that the banks are a little hesitant to lend. If not managed well, it could cause the economy to malfunction. . “
A banker who pleaded for anonymity said some banks ask their staff if clients are bringing in huge deposits and would however advise clients with huge funds to funnel them into treasury bills or other instruments.