Concerns rise as Nigerian banks grapple with deposit decline amid naira scarcity

The Standing Deposit Facility (SDF) of Nigerian banks has experienced an 18% decline, dropping to N2.4 trillion in November from N2.94 trillion in October, raising concerns over liquidity amid cash scarcity. Additionally, the Standing Lending Facility (SLF) recorded a month-on-month increase of 559%, reaching N376.64 billion in November compared to N57.14 billion in October, further amplifying fears within the country’s financial sector.

Data obtained from the Central Bank of Nigeria’s financial report for November 2023 revealed these significant fluctuations. Despite the CBN’s assurance of the resilience of Nigerian banks in a statement on December 11, the substantial decline in SDF and the surge in SLF have heightened apprehensions.

The diminished SDF is linked to a decrease in cash deposits, primarily attributed to the ongoing Naira scarcity issue. To address this, the CBN took steps by suspending processing fees on large cash deposits. The central bank previously attributed the cash crunch to high-volume withdrawals from its branches by Deposit Money Banks and panic withdrawals by customers from ATMs.

Dr. Uju Ogunbunka, President of the Bank Customers’ Association of Nigeria, maintained that despite the CBN’s reassurance, Naira scarcity persists, emphasizing the importance of cash availability for economic activities. Elegede Segun, the secretary-elect of the Association of Mobile Money and Agent Banking Industry in Nigeria, echoed these sentiments, noting a shift away from banks for cash needs towards alternative merchants, resulting in increased costs.

The intertwined challenges of declining deposits and rising lending facility highlight the complexities faced by Nigerian banks amid the current economic landscape.