Banks Deposit Excess Funds With CBN at 24.5% SDF Rate
Deposit Money Banks (DMBs) channelled excess liquidity in the financial system to the Central Bank of Nigeria (CBN) Standing Deposit Facility (SDF) at an adjusted rate around the monetary policy rate.
Last week, money market liquidity crossed N7.1 trillion as the Apex Bank failed to mop up excess funds in the financial system. The financial system experienced refunds for excess cash reserve ratio on banks deposit after monetary policy rate cut and CRR adjustment. This helped in liquidity flooding experience in the money market.
Despite inflows from across matured instruments, the CBN has been inactive to management the funding profile with OMO float ahead of Q4 treasury bills sales.
The financial system closed the week with N5.733 trillion, reflecting a declined from peak level seen. This kept money market rates movement in check while banks took excess funds to standing deposit facility.
Shying away from increasing default rates, local banks channelled excess funds into SDF window, with total amount crossing N6 trillion, according to AIICO Capital Limited.
By mid-week, over N5.39 trillion was parked with the apex bank — a clear sign of weak credit appetite and a preference for risk-free placements, said Cowry Asset Limited.
Despite this abundance, liquidity did not flow freely. The system was hit by significant outflows, including N731 billion in OMO repayments and over N1.26 trillion in FGN Bond settlements conducted by the Debt Management Office (DMO).
Other debits, totalling N576.62 billion, further tightened cash conditions. Yet, even after these drains, liquidity closed the week at N5.73 trillion, representing a hefty 43% week-on-week increase.
Market analyst said, ‘Funding rates did not mirror the liquidity swell. Overnight NIBOR inched higher by 10 bps to 24.88% (from 24.78% the previous week), underscoring persistent funding pressures in the ultra-short end.
Benchmark funding rates remained muted: the OPR held steady at 24.50%, while the overnight rate was up only a whisker to 24.89%.
Looking into the coming week, analysts at Cowry Asset Management Limited expect system liquidity to remain buoyant, supported by upcoming maturities of N250 billion in OMO bills and N230.76 billion in Treasury Bills.
However, this will likely be tempered by fresh mop-up activity, as the CBN is expected to conduct both its regular T-bills primary market auction to sterilize excess liquidity.
The CBN reduced benchmark interest rate by 50 basis points to 27% last month, and asymmetric corridor around the policy rate was also adjusted to +250 bps/-250 bps from +500 bps/-100 bps.
In a note, investment firm CardinalStone Securities Limited said this implies that banks will now borrow from and deposit with the CBN at 29.5% and 24.5%, respectively. DMO Allots Nigerian Bonds to Investors at 16.20% Marginal Rate
