Liquidity Squeeze: Banks Borrow N1.4trn from CBN on Friday

Some deposit money banks borrowed N1.4 trillion from the standing lending facility (SLF) of the Central Bank of Nigeria (CBN) standing lending facility on Friday, investment analysts revealed in their separate market updates obtained by MarketForces Africa.

The financial market liquidity was tightened following debt management office auctions. Banks are expected to stay liquid to meet various short-term obligations from depositors’ regulatory requirements and other business related demands.

However, there have been pressures on the financial system which continue to reduce liquidity levels. The debt office launched large primary auction sales worth N2.5 trillion but raised N1.49 trillion.

The amount was debited against the liquidity in the market. Also, the apex bank sold treasury bills worth N1.2 trillion midweek, which further reduced funding levels in the system. Consequently, short-term interest rates jerked up to double digits and analysts are expecting the money market to remain tight in the new week.

According to Afrinvest, system liquidity closed at ₦1.4 trillion on Friday, 7.9x higher than the prior week’s level following the CBN’s release of a standing lending facility worth ₦1.4 trillion to commercial banks on Friday. Both open repo and overnight lending rates rose sharply due to liquidity constraints, up by 8.7 and 8.8 percentage points to 24.9% and 25.8%.

Notably, key money market rates, such as the open repo rate (OPR) and overnight lending rate (OVN) declined by 0.59% and 0.75%, to 24.91% and 25.75%, respectively.  The increase in short-term benchmark interest rates was driven in part by the settlements for the FGN bond auction worth N1.49 trillion and net NTB issuances of N1.32 trillion.

These inflows however outstripped inflows from cash reserves ratio (CRR) refunds totalling N1.23 trillion and FGN bond coupon payments worth N112.67 billion. In its market update, Cordros Capital Limited said banks’ exposure at the CBN’s SLF window on Friday buoyed the average system liquidity to close at a net long position of N373.34 billion versus a net long position of N302.20 billion in the previous week.

“Barring any significant outflows next week, we envisage the overnight lending rate will likely decline as we expect the inflows from FAAC disbursements of N742.54 billion to support system liquidity”, Cordros Capital analysts stated. #Liquidity Squeeze: Banks Borrow N1.4trn from CBN on Friday  Nigeria’s Foreign Reserves Grow Amidst Struggles

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