CBN’s latest decision seen piling pressure on banks
The decision by the Central Bank of Nigeria to tweak the asymmetric corridor around the monetary policy rate (MPR) is expected to mount pressure on banks’ ability to balance risk and return, analysts at Afrinvest West Africa have said.
The Monetary Policy Committee of the CBN raised the MPR by 50 basis points on Tuesday to 26.75 percent.
“Surprisingly, the committee also tweaked the asymmetric corridor around the MPR to +500/-100bps from +100/-300bps previously,” Afrinvest analysts said in a note.
They said the surprise tweak in the MPR “suggests that the CBN is aggressively dissuading banks from tapping liquidity through the Standing Lending Facility (SLF) window”.
The tweak in the asymmetric corridor to +500/-100bps around the MPR implies that banks seeking to tap funds through the SLF window would have to pay a cost of fund of 31.75% per annum from 27.25% previously, according to them.
They said banks with excess liquidity willing to play at the Standing Deposit Facility (SDF) window would only receive 25.75% interest per annum, thereby expanding the negative spread between SLF and SDF to 600bps from 400bps.
“Based on our assessment of industry data, banks tapped N73.6tn through the SLF window between January and July 2024, representing 8.5x the size of activities at the SDF window. We expect pressure to mount on banks’ ability to balance risk-return going forward,” they added.
