With the advent of monetary tightening policies by the Central Bank of Nigeria (CBN), illiquidity in the banking system in Nigeria hits a new high in just three weeks of June 2024. As merchants and other banks borrow an estimated N3.76 trillion from the apex bank to meet their daily obligations.
The CBN has continued to tighten its monetary rates amid spiralling inflation and an unstable foreign exchange market. In May 2024, financial institutions borrowed about N10.87 trillion from the CBN.
This brings total borrowing by banks from the central bank in five months of 2024 to N53.7 trillion as against N10.02 trillion in five months of 2023. The CBN provides a Standing Lending Facility (SLF) window, a short-term lending window for banks and merchant banks, to access liquidity to run their day-to-day business operations.
In findings banks and merchant banks have since the beginning of this year consistently borrowed from the CBN to meet their daily obligations amid rising inflation and an unstable foreign exchange market.
Analysts have attributed the increasing banks borrowing from CBN to the dwindling naira at the foreign exchange market, coupled with the rising inflation rate and the mopping up of excess liquidity in the financial sector by the CBN.
