Banks Seek Higher Short Term Rates on Free Funds
Some cash-rich Nigerian lenders sought higher short term interest rates on their free funds, causing money market rates to increases steeply at the beginning of the week.
Due to deficit liquidity balance in the financial system, analysts predicted that interbank rates would nudge higher this week in the absence of maturing inflows.
Latest development suggests that market conditions have differing effects on funding positions of big banks, and their distant competitors due to deposit size and market controls.
Some banks have liquidity needs while others are seeking higher returns to part with their free cash. In the market, Tier-1 banks raised their offer rates for small and medium lenders seeking to bridge their funding gaps.
This explains in part the reason for wide gap in cost of funds, cost to income ratio between large lenders and their smaller rivals amidst 45% cash reserves ratio requirement.
Analysts said the banks recently changed from being net borrowers from the Central Bank of Nigeria (CBN) standing lending facility to the deposit side.
According to AIICO Capital Limited, amount of liquidity in the financial system fell into a deficit of -₦175.14 billion on Monday from the previous ₦514.517 billion recorded last Friday. This causes a rush to standing lending facility while banks with free cash raised rates.
As a result, the open repo rate rose by 102 basis points to 25.19%, while the overnight lending rate increased by 82 bps to 25.82%.Nigerian interbank offered rate rose across the board for all the maturities tracked, according to Cowry Asset Limited.
Despite the multiple auctions held throughout the week, system liquidity remained in surplus. This was primarily due to the minimal size allotted at the auctions, which kept liquidity substantially positive TCN Suspends Planned Power Outage in Ondo, Ekiti- BEDC
