As of the end of September 2023, banks' borrowings from the SLF have risen by an impressive 79 percent year-on-year (YoY), escalating to N269.6 billion from the N150 billion recorded in September 2022.
A more detailed examination of the SLF utilization during the first three quarters of 2023 reveals fascinating insights. The CBN's financial data for this period showcases that banks' borrowing activity was particularly robust in the first quarter (Q1'23), with a notable total of N558.5 billion.
However, this enthusiasm waned in the second quarter (Q2'23), marking a dramatic 90 percent quarter-on-quarter (QoQ) decline to N55.3 billion. This downturn was indicative of a temporary ease in liquidity within the financial system.
Interestingly, the third quarter (Q3'23) witnessed a substantial resurgence in banks' utilization of the SLF, surging by an astonishing 387 percent to reach N269.6 billion. This spike in borrowing activity during Q3'23 signals a dynamic financial landscape that experienced shifts in liquidity and credit demands.
Despite these fluctuations, it is worth noting that the July 2023 Monetary Policy Committee (MPC) meeting communiqué from the CBN reaffirmed the stability and strength of Financial Soundness Indicators (FSIs) within the banking system. Key indicators such as the Capital Adequacy Ratio (CAR) at 11.2 percent, Non-Performing Loans (NPLs) ratio at 4.1 percent, and Liquidity Ratio (LR) at 48.4 percent, all as of the end of June 2023, remained robust.
The surge in banks' SLF borrowings YoY can be attributed to increased borrowing activities from both the government and the private sector. The CBN's Money and Credit Statistics data for August 2023 unveiled a month-on-month (MoM) increase of 0.62 percent in banks' credit to the government, rising from N32.5 trillion in August to N32.3 trillion in July. Similarly, credit to the private sector witnessed a 1.1 percent MoM increase, reaching N54.7 trillion compared to N54.1 trillion.
This credit expansion culminated in a 0.92 percent MoM rise in net domestic credit, totaling N87.3 trillion in August, up from N86.5 trillion in July, contributing to the fluidity of financial activities.
