CBN Debits Banks N430bn, Short-Term Rates Dip
For failing to lend 65% of the total deposit to the real sector, the Central Bank of Nigeria (CBN) sterilised a whooping sum of N430 billion from banks amidst uncertainties in the economy. Local deposit money banks’ appetite for loans has been impacted by a weak macroeconomic condition – with inflation accelerating strongly and weak naira.
Banks are weighing the impacts of tight economic conditions on default risk amidst growing problem loans. Fitch Ratings said in a note that some Nigerian lenders are seeing stage two loans growing faster than anticipated.
The situation was driven by the devaluation of the naira that forced corporates to report large FX losses in their books. Data from the Nigerian Exchange showed that first-half earnings releases were coloured by negative impacts of revaluation losses on companies’ bottom lines across sectors.
According to reports, banks’ clients in the manufacturing sector are facing a tough time getting access to forex, the same situation facing other sectors like consumer goods and retail and commerce.
Despite the large debit due to the higher cash reserves ratio, liquidity in the financial system remained heavy. This kept short-term interest rates at single digits lower, according to data from FMDQ Exchange.
At the close of business last week, the overnight rate contracted by 3 basis points to 1.7%. Analysts highlighted that the depressed interbank rate was supported by the prior week’s healthy system liquidity coupled with this week’s inflows from OMO maturities of N10.00 billion.
The amount that found its way into the financial system then reduced the impact of the week’s cash reserve debit of N430.43 billion) across the banking system. Accordingly, the system liquidity averaged a net long position of N479.10 billion last week versus a net long position of N804.77 billion in the previous week. Naira Devaluation Deepens Economic Crisis in Nigeria
