In apparent reflection of liquidity constraints in the interbank money market, banks’ borrowing from the Central Bank of Nigeria, CBN, rose by 261.3 percent year-on-year (YoY) to N106.3 trillion in 2024 from N29.42 trillion in 2023.

The CBN has two short term lending windows for banks namely the Standing Lending Facility (SLF) and Repo lending.

While the CBN lends money to banks through the SLF at interest rate of 500 basis points (bpts) above the Monetary Policy Rate (MPR), it also lends money to banks through Repurchase (Repo) arrangement, which involves the purchase of banks’ securities with the agreement to sell back at a specific date and usually for a higher price.

On the other hand, the CBN accepts deposits from banks through its Standing Deposit Facility (SDF) and pays an interest rate of MPR minus 100 bpts.

A breakdown of CBN’s quarterly financial data for 2024 showed that banks borrowing from the apex bank grew by 190.5 percent to N23.3 trillion in the second quarter of the year (Q2’24) from N8.02 trillion in the first quarter (Q1’24).

In Q3’24, banks’ borrowing rose by 24.3 percent to N28.98 trillion and up by 55 percent to N44.92 trillion in Q4’24.

On the other hand, banks’ deposits with the apex bank through the SDF rose YoY by 98 percent to N35.53 trillion in 2024 from N16.3 trillion in 2023.

The breakdown of the CBN data for 2024 showed that banks’ deposits with the CBN rose by 553 percent to N11.56 trillion in Q2’24, from N1.77 trillion in Q1’24.

In Q3’24, banks’ deposits with the apex bank fell by 39.7 percent to N6.96 trillion but went up by 118.3 percent to N15.2 trillion in Q4’24.

The spike in banks’ borrowing from the CBN, was triggered by the tight monetary policy of the apex bank, aimed at curtailing the steady rise in inflation.

In addition to the hike in the Monetary Policy Rate, MPR, the CBN also raised the Cash Reserve Ratio, CRR of Commercial and Merchant banks to 50 per cent and 16 per cent respectively from 32.5 per cent and 10 per cent at the beginning of the year.

Furthermore, the apex bank conducted a liquidity mop up through regular sale of Open Market Operations, OMO treasury bills.

Vanguard’s findings from the apex bank showed that the CBN sold N12.83 trillion worth of OMO TBs from January to December 5th, up from N716.7 billion in the whole of 2023.The intense scarcity of funds also triggered sharp increases in cost of funds in the interbank money market, with average interest rate on Collateralized (Open Buy Back, OBB) and Overnight lending rising to 26.5 per cent and 26.83 per cent at the end of 2024 from 15.4 percent and 15.75 per cent at the end of 2023.