Liquidity: Banks Borrow N1.2trn from Central Bank in 1-Day
Nigerian deposit money banks (DMBs) with liquidity deficits made the largest single withdrawal from the Central Bank’s (CBN) Standing Lending Facility (SLF) to fund operations due to a liquidity shortfall in the money market, TrustBanc Financial Group Limited said in a note.
The banking system is facing a huge liquidity deficit, which at the last count was N266.55 billion on Thursday, as against N201 billion in excess funds reported midweek.
The financial system’s liquidity has been drained as a result of huge outflows relating to the Central Bank of Nigeria auctions. The market also reported an undisclosed FX swap settlement.
“The market was plunged into a debit position, largely due to liquidity drain from FX swaps and increased participation at the SLF window,” investment firm CardinalStone Limited told investors in a note.
Analysts said it is normal market development for liquidity to swing left or right as banks appetite for government securities and subsequent debits for investment placed often drain liquidity balance in the financial market with immediate impacts on rate pricing.
Trading activities began with a strain on liquidity, as the banking system opened with a liquidity shortfall of ₦266.5 billion due to increased funding obligations, the investment firm said in a note.
As a result, the DMBs turned to the Standing Lending Facility (SLF) window of the CBN for succour, withdrawing a total of ₦1.2 trillion, the amount TrustBanc called the largest single-day withdrawal since the turn of the year.
Analysts noted that this liquidity squeeze pushed interbank funding rates (OPR & O/N) up by over 340 bps to close at 31.50% and 32.00%, respectively. Considering the current liquidity balance, analysts at TrustBanc expect funding rates to remain near prevailing levels. #Liquidity: Banks Borrow N1.2trn from Central Bank in 1-Day Ministry Seeks $2 billion Fibre Optics Funding
