Excess Banking Liquidity Drives 60% SDF Placement Surge, Rates Ease
Banks’ activities at the Standing Deposit Facility (SDF) of the Central Bank of Nigeria (CBN) increased 60% to N4.15 trillion, according to market reports obtained by MarketForces Africa.
Analysts said the movement of the short-term interest rate benchmark aligned with robust liquidity conditions in the financial system, keeping funding rates in check.
Interbank short-term borrowing declined, though the market reported mild activity in the standing lending facility (SLF) as some smaller banks sought to close funding gaps.
Investment firm Cowry Asset Limited said the market remained awash with liquidity, supported by substantial inflows from maturing Open Market Operation (OMO) bills worth ₦2.21 trillion.
Financial liquidity was further buoyed by inflows from the maturity of Treasury bills totalling ₦269.36 billion, while the Debt Office opened a N700 billion midweek auction for subscription.
The Debt Management Office, on behalf of the Central Bank, sold treasury papers worth N1.06 trillion to investors across standard tenors.
Hence, system liquidity moderated slightly, with an N1.06 trillion auction settlement. Despite the midweek auction deficit, financial liquidity remained comfortably positive, closing at ₦4.32 trillion on Friday.
During the week, banks’ deposits at the CBN SDF window surged by almost 60% to ₦4.15 trillion, up from ₦2.60 trillion the previous week.
Investment firms reported marginal borrowing through the Standing Lending Facility (SLF), totalling ₦36.10 billion, underscoring limited funding pressures within the banking system.
Reflecting the improved liquidity environment, interbank funding rates declined across the curve, Cowry Asset Management Limited said in its report.
Nigerian Interbank Borrowing Rate (NIBOR) eased by 10 basis points to 22.19%, indicating reduced demand for short-term funding among banks.
Looking ahead, Cowry Asset Limited anticipates liquidity conditions to remain supportive, with approximately ₦900 billion in OMO maturities scheduled to flow into the banking system in the new week.
However, the firm said it expects the CBN to remain proactive in managing excess liquidity through additional OMO auctions.
The markets anticipate some liquidity reduction actions ahead of the release of the June inflation report and subsequent FAAC disbursements, both of which are expected to shape investor sentiment and short-term yield direction. CBN Hikes Interest Rates on Treasury Bills, Allots N1.1trn
