Interest On Higher SDF Grows Banks’ Deposits In CBN To N5.35trn In Two Months

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Banks operating in Nigeria have deposited N5.35 trillion with the apex bank between October and November 2023 following the removal of the cap on the Standing Deposit Facility (SDF) remunerable by the Central Bank of Nigeria (CBN).

Data obtained by InsideBusinessNG from the CBN revealed that banks in October deposited N2.95 trillion and also deposited N2.41 trillion in November 2023 as lenders with deposits above N2 billion can now earn interest as against the previous policy that disallowed deposits over N2 billion from generating interest.

The CBN governor, Olayemi Cardoso had announced that the removal of the cap on remunerable SDF is to increase activity in the SDF window and manage liquidity.

An SDF is an overnight deposit facility that allows banks to park excess liquidity (money) to CBN and earn interest.

CBN in a circular dated 2014 had disclosed that the remunerable daily placements by banks at the SDF shall not exceed N2 billion.

According to the CBN, “The SDF deposit of N2 billion shall be remunerated at the interest rate prescribed by the Monetary Policy Committee (MPC) from time to time. Any deposit by a bank over N2 billion shall not be remunerated. The provisions of this circular took effect on July 11, 2019.”

The applicable rates for the SDF and SLF increased by 50 basis points to 11.50 and 19.50 percent, respectively, following the hike in the policy rate by 50 basis points to 18.75 percent in June 2023 when the Monetary Policy Committee of the CBN unanimously narrowed the asymmetric corridor from +100/-700 to +100/-300 basis points around the MPR.

The Central Bank has consistently maintained a hawkish monetary policy stance since May 2022 in its bid to tackle the rising inflation rate which currently stands at 27.33 percent as of October 2023.

However, the CBN has over the years maintained that the strong patronage at the SDF confirmed healthier liquidity in the banking system, stressing that banks and merchant banks were in search of better yields.

The current inflation rate in Nigeria is above the yield on Treasury bills (T-Bills) and DMBs are looking for risk-free investments, which SDF has provided since the MPR hike.

Analysts stated that financial institutions prefer depositing with CBN as it is safe and risk-free, stressing that the present business environment has forced banks and discount houses to lend cautiously in the real sector.

The CEO of Wyoming Capital & Partners, Tajudeen Olayinka, noted that the surge in bank deposits with CBN led to uncertainty in the business environment over rising insecurity, among others.

He stated, “The most significant factor is the increasing level of threat in the environment of business in Nigeria, arising from insecurity, supply chain problems, rising inflation and poor purchasing power, low level of productivity, rising unemployment, liquidity overhang and paucity of risk-free financial instruments.”

He added “As a result, most banks prefer to be debited by CBN for running short of LDR limit, as against extending credit to businesses that are finding it difficult to survive. It is all about managing risk.”

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