Banks Seek Better Returns, Move N3.76trn From CBN’s Vault In 13 Days

Nigerian banks withdrew N3.76 trillion from the Central Bank of Nigeria’s (CBN) Standing Deposit Facility (SDF) in 13 days, in what appears to be a search for better returns after the central bank cut interest rates.

LEADERSHIP checks showed that the balance fell from a peak of N7.52 trillion on September 24 to N3.76 trillion on October 7.

On Wednesday alone, banks cut N941.85 billion from the facility, down from N4.70 trillion the day before. That took the balance below N4 trillion for the first time since September 21, when it stood at N3.65 trillion.

On September 22, the Monetary Policy Committee (MPC) cut the Monetary Policy Rate (MPR) by 350 basis points to 23 per cent, the biggest cut since 2006. It also reset the corridor around the rate to +50 and -300 basis points.

The SDF is an overnight facility where banks park excess cash with the CBN without collateral.

It is safe, but the return is now lower than before the cut. That narrows the gap between what banks earn at the CBN and what they can earn elsewhere, giving them a reason to seek higher yields.

However, CBN data showed that deposits did not begin to decline immediately after the rate cut.

Deposits rose after the MPC met, from N4.51 trillion on September 22 to N7.34 trillion on September 23, then to N7.52 trillion on September 24.

The 13-day fall is therefore measured from a peak that came after the decision.

Analysts believe the initial increase was driven by the maturity of Open Market Operations (OMO) bills and a wait-and-see approach by banks following the rate cut. The CBN repaid N2.27 trillion on maturing OMO bills on September 22, the day the MPC met.

With that cash back in their accounts and yields now lower, banks appear to have parked it at the SDF while they decide where to deploy it. The balance rose by N2.83 trillion the next day. Part of the build-up may also reflect banks pausing to see how the market would settle after the 350-basis-point cut before committing funds elsewhere.

LEADERSHIP checks further showed that deposits dropped from N7.52 trillion to N5.90 trillion on September 25, then rose to N6.01 trillion on September 28 and N6.28 trillion on September 29.

They fell to N4.55 trillion on September 30, rose to N4.86 trillion on October 5, and slipped to N4.70 trillion on October 6 before Wednesday’s drop.

The CBN left its reserve requirements in place. The Cash Reserve Ratio (CRR) stays at 45 per cent for commercial banks and 16 per cent for merchant banks. The 75 per cent CRR on non-TSA public-sector deposits also remains in effect. A large share of bank deposits, therefore, stays with the CBN, whatever happens at the SDF.