Liquidity: Banks Borrow N3.6Trn from CBN at Higher SLF Rate
Deposit money banks (DMBs) raised N3.6 trillion to fund their operations from the Central Bank of Nigeria’s (CBN) Standing Lending Facility (SLF) window as negative liquidity balances persisted in the financial system.
The banking system had a N237 billion deficit at the close of the week, according to data gathered from investment firms, a moderate decline from the opening negative liquidity balance of N269.7 billion.
Tight liquidity caused banks to increase borrowing from the CBN’s Standing Lending Facility (SLF) to meet their short-term funding requirements following moves to boost investment in government securities in recent past weeks.
After the CBN hiked the benchmark interest rate to 27.50% in the November meeting and retained an asymmetric corridor around policy rate, Standing Deposit Facility (SDF) rate has then reached 26.25% and the Standing Lending Facility (SLF) borrowing rate increased to 32.25%.
The liquidity balance in the financial system was negative all through the last week in the absence of significant inflows. Liquidity deficit peaked at N438 billion before it began to retreat on the back moderate inflows from various sources.
The banking system has been groaning under intense liquidity pressures following a series of outflows related to primary market auction sales. Banks, like pension funds administrators, are top buyers of government borrowing instruments.
Ahead of federal account allocation committee credits, the financial system had witnessed outflows for bonds and Treasury bills auction. Due to heavy debits against the balance in the financial markets, short-term benchmark interest rates were adjusted above 30%.
The Nigerian Interbank Offered Rate (NIBOR) declined across all maturities in the money market at the close of the week, reflecting liquidity conditions in the banking system. According to analysts notes, cash-rich local deposit money banks were seen demanding for higher interbank rates in order to part with their excess liquidity.
This money market rates adjusted downward last week as moderate inflows eased tight liquidity conditions. Some banks made deposit at the Central Bank of Nigeria’s window. The CBN continues to keep eyes on liquidity level to reduce inflation. Recall the SLF rate, which banks use to borrow short-term funds from the CBN, was raised to about 32% to reflect high interest rate environment.
Data from the FMDQ platform revealed that despite the fact that liquidity level was negative at the close of business in the financial system, interbank rates declined below 30%.
The financial system balance saw inflows from FGN coupon payments amidst $102 million in FX auctions debits, and this caused a squeeze in the funding profile. Last week, inflows from FAAC credits amounted to N300 billion, bolstering liquidity balance in the financial system.
There were also N5.66 billion inflows from FGN bond coupon payments. But the amount was insufficient to upturn the liquidity deficit, which persisted throughout the week. Thus, the average liquidity closed at a net short position of NGN325.66 billion as against a net long position of N121.25 billion in the prior week, according to Cordros Capital Limited.
Analysts noted excessive borrowing activities, as evidenced by N3.6 trillion accessed from the CBN borrowing facility. Details revealed that the CBN debited local banks for additional deposits taken as part of loan-to-deposit ratio maintenance. CBN’s 50% cash reserve ratio activities exacerbated the illiquidity, resulting in a significant rise in interbank rates.
The open repo rate declined by 56 basis points to settle at 29.25% on Friday, data from the FMDQ platform confirmed. Also, the overnight lending rate plunged by 59 basis points to settle at 29.91%.
Thus, the average liquidity closed at a net short position of N651.32 billion, according to Cordros Capital Limited, as against a net short position of N174.26 billion in the prior week.
Analysts anticipate that the interbank rate will remain uptrending in the new week in the absence of any notable inflows into the financial system. #Liquidity: Banks Borrow N3.6Trn from CBN at Higher SLF Rate #VFS Global Inaugurates New Visa Application Centres in Lagos
