Banks borrowed about N4 trillion from the Central Bank of Nigeria (CBN)’s standing lending facility to close the liquidity gap in the money market.
The Nigerian banking system is facing huge liquidity deficit, which at the last count was about N398 billion. Though the market saw inflows, this was eclipsed by the level outflows recorded.
This is even as banks’ interest rates are on the increase.
Market watchers attributed the high interest rates to the central bank unrelenting policy of constantly increasing the benchmark rate last year.
That is even as the apex bank through many windows were mopping exceeds liquidity in the previous year.
The systemic liquidity shortage highlighted the huge outflow relating to cash reserves maintenance debit by the CBN and swap rollover. The banking system also got sucked by foreign exchange (forex) settlements due to US dollar sales to banks.
Hence, the banking system ended the week with a deficit balance of N397.79 trillion, TrustBanc Financial Group Limited said in a note. The level of liquidity deficit marked a sharp reversal from the surplus of N346.96 billion recorded the previous week, according to analysts. Details from the money market data deficit liquidity balance all through the week.
This happened despite inflows from OMO maturities and Remita inflows, but the level of outflows kept interbank rates on the tighter end. In an update, AIICO Capital Limited noted that the financial system was squeezed due to net cash reserves debit on banks amidst inflows from Remita.
The money market also experienced outflows for foreign exchange settlement amidst swap rollover. Despite some improvements from OMO maturities injection worth N252.50 billion in the system, liquidity remained tight throughout the week.
Analysts noted that the tight liquidity conditions forced local banks to rely heavily on the CBN’s Standing Lending Facility (SLF) window, with total borrowings amounting to N3.99 trillion.
Hence, interbank funding rates increased from 28 per cent levels recorded last week to trade around 32 per cent—a level that analysts expect to linger until next catalysts drive a change. Explaining further, analysts at Cordros Capital Limited said the overnight rate expanded by 489 bps week on week to 32.8 per cent.
This was due to CRR debits, which offset inflows from OMO maturities (N252.50 billion) and FGN bond coupon payments (N410.70 million), thereby pressuring system liquidity. Data from the FMDQ platform confirmed that open repo rate (OPR) surged by 504 per cent week on week to close at 32.33% on Friday.
Marketforce’s Africa added that, the overnight lending rate climbed by 489 per cent week on week to close at 32.75 per cent in the absence of significant inflows. Analysts expect inflows from FGN bond coupon payments worth N162.42 billion to support system liquidity in the new week.