34 per cent of commercial loans held by public sector
Deposit money banks (DMBs) accessed an accumulated value of N4.4 trillion from the Central Bank of Nigeria (CBN) through its overnight lending window from June to August, data sourced from the regulator suggested.
Banks regularly access the CBN’s Standard Lending Facility (SLF) to borrow funds, subject to some eligibility requirements, to address their short-term liquidity gap. On the other hand, lenders also leverage the Standing Deposit Facility (SDF) window to deposit excess cash.
Commercial banks access SLF at 100 basis points above the monetary policy rate (MPR). In the case of SDF, lenders get the prevailing benchmark interest rate minus 700 basis points (seven per cent).
From June to August, the total SLF stood at N4.44 trillion with June accounting for over 43.3 per cent of the amount accessed in the period. The amount scaled down from N1.93 trillion in June to N1.46 trillion in July. It dropped further to 1.06 trillion last month.
In May, the SLF stood at N953.6 billion, only the figure to have doubled in June. The reflection seen in the last three months may have suggested a steady moderation in short-term liquidity challenges by the banks. It could also suggest an aggressive repricing of risks by the banks.
The two closely-related possibilities are also reflected in the behaviour of the trend of SDF, which could be considered as an increasing function of risk premium, in the period. In June, banks’ deposits through the SDF window were N265.3 billion. The amount dropped to N60.8 billion in July only to spike by 185 per cent to N173.2 billion in August.
Last month, activities at the repurchase order (repo), a short-term contract to sell securities to buy them back at a slightly higher price which banks also used to manage temporal illiquidity, also shrunk by 55.5 per cent. The value of repo, in August, was N1.36 trillion.
In June and July, repo recorded N1.65 and N3.07 trillion respectively, bringing the three-month transaction to N6.08 trillion.
In August, the banks’ exposure to repo and SLF fell, while excess overnight deposits (SDF) went up. The trends suggest the banks were either risk-shy or saw an increase in deposit mobilisation.
Last month’s credit data is unavailable. But the country’s net domestic credit, as of July, had seen a year-to-date (YTD) growth of 23 per cent. The figure stood at N48.76 trillion as at December 2021 but soared to N59.96 trillion.
In the period, credit to the private sector witnessed a somewhat sluggish growth compared with credit to the pulic sector. With the differential between the two broad categories of credit fast closing, credit extended to government recorded 45 per cent growth in the seven months hitting N20.09 trillion as at July.
With the growth, banks’ exposure to public sector entities is about 34 per cent of their loan portfolio. That implies about one-third of commercial loans are held by government and its associated entities.
While credit extended to the private sector also increased in the period, the growth was slower. The amount rose from N34.92 trillion in December 2021 to N39.87 trillion in July.