Banks Reduce Interest in CBN Placement as SDF Rate Falls
Deposit Money Banks (DMBs) have started to scale back placements with the Central Bank (CBN) Standing Deposit Facility (SDF) following an adjustment to the asymmetric corridor around the key interest rate.
The monetary policy decision, reduction of the Standard Facility Corridor to +50/–450 basis points from the previous +250/–250 basis points, crashed money market rates. The readjustment in the asymmetric corridor reflects a subtle expansionary undertone.
By making it less attractive for Banks to place excess liquidity with the Apex Bank, this move encourages funds flow into the private sector, supporting credit growth and improved economic activity, Anchoria Securities Limited said.
Banks have been playing strong, placing excess liquidity with the CBN to earn a 24.5% deposit rate amidst low appetite for private sector lending due to rising default rates.
Many lenders shifted focus to investment securities to boost earnings performance and scaled back on core business. The corridor adjustment is seen as a move that encourages funds to flow into the private sector, supporting credit growth and improved economic activity.
The SDF rate, the amount earned by banks on placement with CBN, reduced to 22.50%, from 24.50%, leaving banks with a 2% earnings loss.
Also, banks’ borrowing rate from the CBN declined, though activities at the standing lending facility have remained tightened in the fourth quarter, reflecting an absence of liquidity stress.
On Thursday, the market liquidity opened the day with a moderate surplus balance of ₦2.0 trillion, representing a decrease of ₦267.8 billion from the previous level.
This reduction was largely attributed to a significant drop in Deposit Money Banks’ placements at the CBN’s SDF window, which fell to ₦1.8 trillion, according to AIICO Capital Limited, representing a decrease of ₦880.8 billion.
Banks are shifting back positions, searching for new ground, after the rate band adjustment made placements with the CBN less attractive. Market analysts said the decision to keep rates unchanged may spur renewed interest in the fixed-income market, reinforcing its attractiveness.
The average funding rate eased by 2 bps as the Open Repo Rate (OPR) held steady at 22.50%, while the Overnight (O/N) slide 4 bps to 22.71%. The firm expects funding rate to be around the a similar level barring any fund activities. The Initiates Rally Amidst Dual Capital Raising Offers
