- Nigerian banks have borrowed over N1.2 trillion from the Central Bank of Nigeria (CBN) in one day to meet their financial needs
- The banks took the loan to ease the cash shortage in the financial system and support lending to various sectors
- Reports indicate that banks had low cash reserves at the time because customers had made large withdrawals for spending
Legit.ng journalist Victor Enengedi has over a decade's experience covering Energy, MSMEs, Technology, Banking and the Economy.
Due to a lack of cash in the financial system, Nigerian banks have taken a record N1.2 trillion loan from the Central Bank of Nigeria (CBN) through its Standing Lending Facility (SLF) to keep their operations running, according to TrustBanc Financial Group Limited.
The banking sector is facing a major liquidity shortage, with a deficit of N266.55 billion as of Thursday, February 6, compared to an excess of N201 billion earlier in the week.
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Banks turn to CBN for bailout
This cash shortage is mainly due to large withdrawals linked to the CBN’s financial auctions. Also, there was an unreported foreign exchange (FX) swap settlement.
Experts say it is common for liquidity levels to rise and fall, depending on banks’ demand for government securities and their related investments, which can quickly affect cash availability and interest rates.
As trading started, the financial system was already short of N266.5 billion due to increased financial commitments. This led banks to rely on the SLF, withdrawing a record N1.2 trillion in a single day.
The tight liquidity situation pushed interbank lending rates (OPR & O/N) up by over 340 basis points, closing at 31.50% and 32.00%, respectively.
According to The Guardian, TrustBanc analysts predict these rates will stay high given the current cash shortage.
Earlier this year, the CBN reported that liquidity problems forced commercial and merchant banks to borrow N8.2 trillion from the central bank within the first 17 days of January 2025.
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Even though the CBN supplied banks with cash, shortages continued at ATMs and bank counters. As a result, many people had to depend on PoS operators to withdraw money.
During this period, banks and merchant banks had deposits of N6.69 trillion with the CBN, even as they tried to increase lending to the real sector.
Banks can borrow short-term funds from the CBN through the SLF to manage daily operations.
They can also deposit extra cash with the central bank using the Standing Deposit Facility (SDF).
The SLF serves as a short-term funding option to help banks stay liquid.
CBN confirms validity of old, new naira notes
Meanwhile, Legit.ng reported that the CBN has denied reports that the old N200, N500, and N1,000 notes will stop being legal tender by December 31, 2024.
The CBN described these claims as false and misleading, saying they were meant to cause confusion in the financial system.
The bank has instructed all banks to continue accepting and issuing both the old and redesigned naira notes.
