Liquidity Pressure: Banks Raise N4.4trn to Fund Operations
Nigerian commercial banks raised N4.4 trillion from the standing lending facility (SLF) of the Central Bank (CBN) as liquidity pressures persisted.
Deposit Money Banks increase borrowing from the Central Bank of Nigeria window to meet short term funding requirements while boosting the investment in government securities.
The CBN continues to keep eyes on liquidity level to reduce inflation. Recall the SLF rate, which banks use to borrow short-term funds from the CBN, was raised to 31.75% in August 2024 to reflect high interest rate environment.
Data from the FMDQ platform revealed that the tight funding level in the financial system caused interbank rates to surge to 33% range at the just concluded week.
While the financial system balance saw inflows, banks betting on Nigerian Treasury, OMO Bills auction caused a squeeze in the funding profile.
The debits for Treasury bills and OMO Bills and FX auctioned by the CBN last week reduced balance in the financial system, apart from additional outflow relating to cash reserve ratio maintenance.
Analysts at Cordros Capital saw weak naira liquidity, as evidenced by the bank’s excessive activities at the CBN’s SLF window totaling N4.40 trillion.
Details revealed that the CBN debited local banks for additional deposits taken as part of loan to deposit ratio maintenance. The financial market also experienced outflow relating to settlement of N500 billion OMO bills auctioned by the CBN.
Specifically, analysts said CBN’s 50% cash reserve ratio activities exacerbated the illiquidity, resulting in a significant rise in interbank rates.
The open repo rate increased by 33 basis points to settle at 32.36% on Friday, data from the FMDQ platform confirmed.
Also, the overnight lending rate rose by 60 basis points to settle at 33%. The huge OMO auction debit, FX swap outflow dwarfed net inflows from OMO maturities worth N54.45 billion, thus further pressuring system liquidity.
Thus, the average liquidity closed at a net short position of N651.32 billion, according to Cordros Capital Limited as against net short position of N174.26 billion in the prior week. #Liquidity Pressure: Banks Raise N4.4trn to Fund Operations
