In the first seven days of 2025, loans from the Central Bank of Nigeria (CBN) to commercial banks soared to a historic high of ₦1.2 trillion, signaling significant liquidity pressures in the banking sector. This represents a 961.3% increase compared to ₦114.2 billion recorded during the same period in 2021, according to CBN data.
The surge in reliance on the Standing Lending Facility (SLF), a short-term borrowing mechanism for banks, is attributed to a combination of factors:
- Liquidity Constraints: Tight monetary policy and regulatory measures have pressured banks to seek additional funds.
- Economic Challenges: Rising funding demands and inflationary pressures have compounded liquidity issues.
- Naira Depreciation: A depreciation of over 74% in the naira over the period has amplified the nominal increase in borrowing figures.
Ayokunle Olubunmi, Head of Financial Institution Ratings at Agusto Consulting, highlighted the impact of currency depreciation and contractionary policies on banks’ borrowing needs. He noted that rising funding demands are partly driven by the increasing cost of doing business in the country.
A breakdown of CBN loans to banks in the first seven days of the past five years emphasizes the escalating demand:
- 2025: ₦1.2 trillion
- 2024: ₦151.3 billion
- 2023: ₦329.2 billion
- 2022: ₦48.1 billion
- 2021: ₦114.2 billion
Bismarck Rewane, Managing Director/CEO of Financial Derivatives Company Limited, observed that banks have increasingly relied on CBN loans to purchase foreign exchange (FX), worsening inflation and weakening the naira.
In July 2024, Rewane explained the implications of adjustments to the Monetary Policy Rate (MPR), which raised borrowing costs for banks. “Before now, banks were borrowing at about 26%. As of today, they will be borrowing at almost 32%,” he said. These higher costs are designed to deter excessive borrowing and ease pressure on the naira.
To combat inflation, which stood at 34.6% in November 2024, the CBN has adopted contractionary policies, including raising the MPR to 27.5%. These measures have driven up borrowing costs for banks, forcing them to depend on the SLF to meet short-term liquidity needs.
The banking system also experienced a liquidity deficit of ₦207.6 billion, a sharp contrast to the ₦253.6 billion surplus recorded the previous month. This deficit has further fueled reliance on CBN funding.
The CBN’s directive requiring international banks to maintain a minimum capital base of ₦500 billion by March 2026 has added to the sector’s challenges. Banks are now exploring options such as capital market funding and balance sheet adjustments to comply with the directive.
Analysts warn that the elevated cost of borrowing, exceeding 30%, could erode profit margins for banks and lead to higher lending rates for businesses and consumers. As a result, credit availability might decline, potentially hindering economic growth.
Conclusion
The unusual borrowing from the CBN highlights the mounting pressures within Nigeria’s banking sector. While the measures aim to stabilize inflation and currency fluctuations, they also underscore the need for sustainable monetary and fiscal strategies to support economic recovery and financial stability.
