Due to the tight monetary policy of the Central Bank of Nigeria (CBN), which led to cash scarcity, commercial banks and other financial institutions borrowed a massive N131.42 trillion in 2024 to meet their daily needs.

Data released by the CBN shows that the amount represents a 636.6% increase and more than the N17.84 trillion the financial institutions borrowed in 2023.

Banks’ borrowing from CBN increased in March 2024

The CBN data indicated that commercial and merchant banks borrowed the most in March 2024 and the lowest in January last year.

In March 2024, financial institutions borrowed N21.74 trillion, the least in January 2024, N2.9 trillion.

Commercial and merchant banks access borrowing through CBN’s Standing Lending Facility (SLF) window and deposit excess liquidity with the apex bank using the Standing Deposit Facility window (SDF).

According to the report, CBN provides the SLF to banks so they can access cash to run their businesses.

Findings show that commercial and merchant banks borrowed from the CBN aggressively in 2024, which shows cash challenges in the financial industry.

Banks face cash scarcity due to low deposit

The increase in liquidity can also be attributed to low cash deposits by bank customers, which have led to cash scarcity in banks.

ThisDay reports that these financial institutions borrowed from the CBN in 2024 at an interest rate of 32.50% as the asymmetric corridor around the MPR at +500/-100 basis points.

Additionally, investigation shows that commercial and merchant banks' deposits to the CBN rose significantly to N38.12 trillion in 224, representing a 210.15% rise relative to N12.29 trillion in 2023.

The development comes amid CBN’s removal of the cap on the remunerable policy.

Nigeria's most valuable banks

The development comes as the market value of Guarantee Holding Company Plc (GTCo) and nine other banks in Nigeria increased to N7.87 trillion in 2024 as the market cap rose to N62.76 trillion on the stock market on the Nigerian Exchange Limited (NGX) in the outgone year.

Findings show that the NGX banking index has experienced mixed reactions in 2024, closing positive amid corporate earnings by listed lenders on the exchange.

CBN raises capital requirements for banks

Analysis shows that investors have traded cautiously in the banking stocks following the Central Bank of Nigeria (CBN) recapitalisation plan.

The apex bank announced the recapitalisation exercise in the first quarter of 2024, and investors have been cautious about the stocks.

According to reports, commercial banks have been required to raise a minimum of N500 billion for international authorisation and N200 billion for local authorisation.

Banks with regional licenses have been asked to raise N50 billion in capital as a minimum requirement. In contrast, non-interest banks have been required to increase their capital to N20 and N10 billion, respectively.