Liquidity Squeeze: Banks Borrow N1trn from CBN, Rates Rise
To achieve their respective liquidity demands, some Nigerian deposit money banks queued at the Central Bank of Nigeria’s (CBN) standing lending facility to raise a total sum of N1 trillion.
This is coming amidst rising interbank rates, which has peaked at double digit highs following the monetary tightening that took policy rate to 24.75% in March, 2024. Last week, banks were debited for cash reserves (CRR) maintenance. This tightened liquidity level in the money market despite some CRR refunds made by the regulator.
Recall that the industry regulator or the apex bank, has recently slashed loan-to-deposit ratio to 50% from 65% to give some breathing space with its persistent debits against local lenders that failed to meet lending targets.
Over time, liquidity position of some banks, especially the small and medium lenders in the industry, has been stretched, causing their funding costs to spike due to sustained borrowings from standing lending facility of the CBN.
Liquidity pressures in the financial system persisted as commercial lenders and government authorities compete for share of available cash in the financial system.
Still, the CBN is mopping up what it considers as excess liquidity in the economy by selling short term borrowing instruments to investors – currently at elevated spot rates. Moody’s Upgrades Helios Towers’ Rating with Stable Outlook
The squeeze on liquidity and changing market dynamics have seen short term benchmark interest rates reach double digits high, according to information obtained from the FMDQ Securities Exchange. A leading investment firm, Afrinvest Limited, reported that the system liquidity closed at ₦1.1 trillion, which was 4.4x higher than the previous week.
The increase – despite ₦626.8 billion debited against the liquidity level in the system – was supported by banks tapping into the SLF to the tune of ₦1 trillion. There were additional ₦191.5 billion inflows that added up to the closing amount, according to analysts notes.
As such, the open repo rate declined to 29.4%, although the overnight lending rate rose 18 basis points to reach 30.3% at the end of the week. Reacting to the liquidity size, the overnight (OVN) rate inched higher by 18 basis points to 30.3% following settlement obligations for the net Nigerian Treasury bill issuances worth N802.19 billion.
There was an outflow for FGN bond primary market auction sales worth N626.81 billion and CRR maintenance debits, which then outstripped the inflows from FGN bond coupon payments totaling N145.98 billion.
In its market update, Cordros Capital Limited said the average system liquidity closed higher at a net long position of N1.03 trillion as against a net long position of N55.45 billion in the previous week.#Liquidity Squeeze: Banks Borrow N1trn from CBN, Rates Rise
