A Review of the Nigerian Energy Industry

Banks earn N27.76bn from deposits placed with CBN

19 January 2015, Lagos – Banks earned N27.26 billion as net interest earned from placing their excess liquidity as deposit with the Central Bank of Nigeria.

Central Bank of Nigeria, CBN.
Central Bank of Nigeria, CBN.

Meanwhile the nation’s currency depreciated in the interbank and parallel markets last week, losing an average of N2.25 kobo in both segments of the foreign exchange market. In the interbank market, the naira depreciated by N2 as the interbank exchange rate closed the week at N185.1 per dollar, up from N183.1 in the previous week.

At the parallel market, the naira depreciated by N2.5 as the parallel market exchange rate closed the week at N192.5 per dollar, up from N190 per dollar the previous week. The official exchange rate however remained stable at N168 per dollar, while the CBN sold $499.25 million last week through the bi-weekly dollar sales, known as Retail Dutch Auction System (RDAS).

On the other hand, the nation’s external reserve rose marginally by $16 million last week as it rose to $34.505 billion as at Thursday last week from $34.489 billion, the previous week.

Banks earn N27.76bn interest :

The CBN has two facilities namely the Standing Lending Facility (SLF) and the Standing Deposit Facility. Banks access the SLF to borrow from the CBN while they access the SDF to place deposit with the CBN. Presently the CBN charges 15 percent as interest rate on loans to banks through the SLF while it pays 11 percent as interest on deposit placement through the SDF.

Vanguard investigations reveal from October 2013 and September last year, banks placed N81.85 trillion as deposit with the CBN through the SDF and borrowed N5.14 trillion through the SLF. Further, the CBN paid interest of N32.9 billion on the deposit through the SDF, while it earned interest of N3.68 billion on loans to banks through the SLF.

While, the N81.85 trillion placed as deposits with the apex bank within this period revealed the severity of the problem of excess liquidity in the banking system, while the net interest of N27.76 billion earned by banks reveals why banks prefer to place deposit with the apex bank rather lend to the economy. On the average, banks placed more than N300 billion with the CBN on a daily basis with the apex bank during this period.

To check this trend, the CBN in November last year, limited banks daily placement through the SDF to N75 billion with interest payment of 10 percent. The apex bank said that it would not pay interest on deposits above this limit.

The CBN in a circular issued on November 6th said, “It has been observed that banks and discount houses have preferences for keeping their idle balances at the Central Bank in the standing Deposit Facility (SDF) thereby constraining the process of financial intermediation.

“In order to encourage the banks to increase lending to the productive sector of the economy, the guidelines for the operations of SDF is hereby reviewed as follows: The remunerable daily placements by banks and discount houses shall not exceed N7.5billion. This shall be remunerated at the SDF rate of 10 percent per annum.”

Quarterly Analysis :

A quarterly analysis of lending and deposit place cements through the SLF and SDF reveal that in the last quarter of 2013, “The total Standing Lending Facility (SLF) granted during the review period was N1,445.54 billion with a daily average of N24.09 billion in the fourth quarter of 2013, compared with N5,757.88 billion in the preceding quarter, indicating a decline of 74.9 per cent. Interest paid on SLF in the fourth quarter of 2013 stood at N 0.87 billion.

“Total standing deposit facilities (SDF) granted during the review period was N18,088.37 billion with daily average of N301.42 billion, compared with N14,368.61 billion granted in the third quarter. The cost incurred on SDF rose by 26.5 per cent to N7.12 billion, compared with N5.63 billion in the preceding quarter.”

In the first quarter of 2014, “The total Standing Lending Facility (SLF) granted during the review period was N3,169.26 billion with a daily average of N51.12 billion in the first quarter of 2014, compared with N1,445.54 billion in the preceding quarter, indicating an increase of 119.2 per cent. Interest paid on SLF in the first quarter of 2014 stood at N1.70 billion, compared with N0.87 billion in the preceding quarter.

“Total standing deposit facilities (SDF) granted during the review period was N24,037.26 billion with daily average of N387.7 billion, compared with N18,088.37 billion granted in the fourth quarter of 2013. The cost incurred on SDF rose by 32.3 per cent to N9.42 billion, compared with N7.12 billion in the preceding quarter.”

In the second quarter of 2014, “ Total request for the standing lending facility (SLF) was N197.81 billion with a daily average of N3.35 billion for the 59 working days in the second quarter of 2014, compared with N3,169.26 billion in the preceding quarter. The SLF request in the review period was N2,971.45 billion lower than the value in the preceding   quarter. The total interest earned on SLF in the quarter stood at N93.46 million, compared with N1.70 billion in the preceding quarter.

“Total standing deposit facility (SDF) granted during the review period was N21,756.73 billion with daily average of N368.76 billion in the review quarter, compared with N24,037.26 billion granted in the preceding quarter. The cost incurred on SDF in the quarter stood at N9.01 billion, compared with N9.42 billion in the preceding quarter.”

In the third quarter of last year, “Total request for the standing lending facility (SLF) granted during the review period was N327.38 billion with total interest earned amounting to N175.31 million, compared with the total request of N198.19 billion and total interest of N93.89 million in the preceding quarter.

Total standing deposit facility (SDF) granted during the review period was N17, 960.61billion, while the cost incurred stood at N7.35 billion compared with the request of N22,293.91 billion and total interest of N9.32 billion in the preceding quarter.”

– See more at: http://www.vanguardngr.com/2015/01/banks-earn-n27-76bn-deposits-placed-cbn/#sthash.nwoLwrFg.dpuf

– Vanguard

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