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Funding Rates Sink as FAAC Inflow Boosts Liquidity

Funding Rates Sink as FAAC Inflow Boosts Liquidity

Funding Rates Sink as FAAC Inflow Boosts Liquidity

On account of a solid liquidity level in the money market, the short-term benchmark rates slumped sharply Thursday as inflow from the Federal Account Allocation Committee FAAC) hit the financial system.

Local deposit money banks appear to be under no pressure condition that requires them to pitch their tents at the Central Bank of Nigeria’s (CBN) standing lending facility (SLF).

A slew of market analysts and traders told MarketForces Africa that to align with the current market conditions, cash-rich banks who are majorly Tier-1 lenders are accepting lower rates from deposits with other lenders.

The overnight lending rate contracted significantly by 10.20 percentage points to 1.3%, following inflows from FAAC disbursement worth N561.49 billion. This is a reversal from double-digit high funding rates witnessed following liquidity pressure in the financial system due to the annual AMCON debts estimated at N400 billion.

The Asset Management Corporation (AMCON) debit came at the same time when the financial system was debited by N657 billion bond auction sale conducted by the Debt Management Office early in the month. Market data showed that the pressures emanating from the two strong outflows pushed interbank rates from 1-2% to 20-21% over the week.

In its market update sent to investors via email, Cowry Asset Management said the Nigerian Interbank Offered rates across all tenor buckets declined, due to improved liquidity conditions resulting from FAAC inflows.

Specifically, the three-month NIBOR rate decreased significantly by 221 basis points to 10.67%, reflecting eased credit conditions in the financial system, according to the investment firm.

Additionally, the open repo rate (OPR) and the overnight lending rate (OVN) both plummeted to 0.90% and 1.30%, respectively.  System liquidity increased to ₦441.72 billion on Thursday from ₦290.94 billion record midweek. #Funding Rates Sink as FAAC Inflow Boosts Liquidity