Liquidity: Nigerian Banks Borrow N1.82trn from CBN
Stressed by sustained liquidity pressures in the system, a number of Nigerian deposit money banks (DMBs) continue to take refuge under the apex bank’s standing lending facility to meet their daily cash demand.
In total, Nigerian lenders borrowed more than N1.8 trillion from the apex bank to close gaps in their respective liquidity position on Thursday ahead of the Islamic holiday.
On the other hand, the balance in the standing deposit facility has been swinging to the right. Analysts explained that SLF and SDF are two legs of the discount window facility which helps commercial banks manage short-term liquidity.
“Depending on banks positions, money managers either deposit excess cash to deposit window or make withdrawals from lending window to manage liquidity profile at the time”, analysts told MarketForces Africa.
The liquidity pressure has forced cash-starved Nigerian financial institutions to increase their respective withdrawals from the Central Bank of Nigeria facility.
Borrowings to shore up the gap in liquidity positions have been uptrend after the Central Bank of Nigeria’s failed naira swap policy inflicted pains on citizens, companies across the economy, and financial markets.
Banks customers have discovered they have limited rights to their deposited funds in the face of naira policy – whether good or bad – and no matter their respective needs for cash to meet obligations.
In four days, a total of N1.82 trillion in withdrawals was made from the window, according to market data cited by investment analysts at TrustBanc Capital Limited.
Consequently, Nigerian banks have seen their funding costs rise due to a lack of significant inflows. According to analysts, banks regularly access the CBN window to borrow funds, which are normally subjected to eligibility requirements, to address their short-term liquidity gap.
Some deposit money banks reduced their liquidity exposure by selling off a portion of their investment securities, mostly Treasury bills holdings.
However, the sell-down of Treasury holdings which follows a pre-determined investment strategy and plans has proven not to be enough as patterns show that borrowing from the CBN has been on an uptrend since 2023.
The current market condition has pushed the interbank rate upward. In the money market, On Thursday, banks increased their withdrawals at the standing lending window to ₦525.6 billion, about a 23% increase from the previous day’s close.
TrustBanc Capital Limited noted that the deficit in the financial system eased by about 83% to ₦430.03 billion. Last week, debits for the FGN bond auction worth N552.47 billion overshadowed the inflow from FGN bond coupon payments totalling N46.44 billion.
“Throughout the week, deposit money banks occupied the standing lending facility window of the CBN to draw an aggregate of ₦1.82 trillion as system deficit lingered”, TrustBanc said.
The average daily liquidity balance during the week nosedived to ₦454.4 billion deficit when compared with ₦176.3 billion recorded in the previous week. As a result, interbank funding rates traded at market cap levels all week.
The repo rate settle at 18.63% while the overnight lending rate printed at a double-digit high of 19%.
Analysts explained that activities at the repurchase order (repo), a short-term contract to sell securities to buy them back at a slightly higher price which banks also used to manage temporal illiquidity remained near 19%.
In the coming week, analysts at TrustBanc Capital said in a note that they expect buoyant liquidity conditions as the system receives heavy inflow worth ₦1.41 trillion from FAAC allocation, coupon payment and bond maturity.
On April 12, the net balance on the SLF was N240.573 billion while the opening balance of banks, discount houses was about N188 billion. At the time, the net balance in standing deposit facility was more than N1.057 billion, according to CBN data.
In contrast, the net balance in SLF as of 31 March was N billion while the opening balance of banks, and discount houses was N132.051 billion. The total sum at the CBN standing lending deposit at the time was N11.223 billion. #Liquidity: Nigerian Banks Borrow N1.82trn from CBN
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