January 20, 2025
The Nigerian banking system has faced a 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, necessitating banks borrowing about N4 trillion from the Central Bank of Nigeria’s (CBN) standing lending facility to close the liquidity gap in the money market.
According to reports monitored on Marketforces Africa, the systemic liquidity shortage signposted the huge outflow relating to cash reserves maintenance debit by the CBN and swap rollover. The banking system also got sucked by Forex settlements due to US dollar sales to banks.
This made the banking system to end the week with a deficit balance of N397.79 trillion.
TrustBanc Financial Group Limited, in a note, said. “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.
READ MORE; CBN Intervenes With $28.5m To Banks To Shore Up Naira.
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% levels recorded last week to trade around 32%—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%.
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% week on week to close at 32.33% on Friday.
Similarly, overnight lending rate climbed by 489% week on week to close at 32.75% in the absence of significant inflows.
However, analysts expect inflows from FGN bond coupon payments worth N162.42 billion to support system liquidity in the new week.
