Follow Us on Google
By Chinwendu Obienyi
Amid the interplay of monetary policies, liquidity conditions, and market responses which represents a complex economic landscape in Nigeria, commercial banks relied heavily on the Central Bank of Nigeria (CBN)’s Standard Lending Facility (SLF).
According to Afrinvest’s weekly update released at the weekend, about a significant amount of N73.6 trillion was accessed by Nigerian banks via the apex bank’s SLF between the start of January 2024 and July 19th, 2024.
The report noted that this underscores the liquidity pressures within the banking system and added that the usage of SLF, being 8.4 times more than the inflows to the Standing Deposit Facility (SDF), suggests a severe liquidity shortfall that banks are struggling to manage.
Furthermore, the high cost of accessing SLF at 31.75% per annum further exacerbates the situation, increasing funding costs for banks.
Other News
This is coming after the Monetary Policy Committee (MPC) of the CBN adjusted the asymmetric corridor from +100/-300 to +500/-100 basis points.
The report said, “Our take is that MPC’s tinkering of the asymmetric corridor to further tighten liquidity conditions should exert pressure on funding cost for banks, both directly (as lenders tap the window) and indirectly (repricing of rates across money market)”.
It also noted that while these actions increase borrowing costs, which can dampen inflation by reducing money supply, they also place a significant burden on businesses and banks.
This strain comes as businesses face elevated borrowing costs, potentially leading to slower economic activity and growth.
The report stated, “We note that fiscal policy reforms are necessary to fix some of these issues and the monetary policy side can only do so much. Therefore, we assert that continued rate hike without complementary and decisive fiscal efforts might only increase the burden on businesses without much effect on inflation. Nonetheless, the decision to decelerate the pace of tightening indicates awareness of these underlying complexities.
xIn terms of impact, the increase in MPR is expected to lead to an upward repricing of fixed income instruments, especially short-term assets, ranging from treasury bills to commercial papers which will naturally make these investments more attractive to investors compared to stocks. This trend is evident from the recent treasury bills auction, where the average stop rates across all instruments rose by 172bps to 20.0%. Additionally, we anticipate an elevated yield in the bonds market, though at a moderate pace. Conversely, pressure on interest expense and profit margins could dull outlook on corporate earnings, leading to subdued equities sentiment — other things equal”.
