Liquidity Squeeze: Banks Borrow N8.6trn from CBN Lending Facility
With the deposit money banks borrowing spree, the short-term benchmark interest rates ended on a mixed note in the money market in the just concluded week. Persistent liquidity shortfalls caused banks to ramp up borrowing from the Central Bank of Nigeria (CBN) to close the funding gap, though there were inflows from OMO bills repayment.
Borrowing becomes an option for local lenders with liquidity demand. The CBN also carried out its weekly cash reserve ratio maintenance activities on Friday, CardinalStone Limited said in a note.
The CRR action further entrenched the negative liquidity position in the financial system ahead of FAAC inflows in the new week. Money market rates were noted to diverge amidst N8.6 trillion that banks borrowed from the CBN’s Standing Lending Facility (SLF), according to two leading investment banking firms, Afrinvest Limited and TrustBanc Financial Group Limited.
Throughout the week, interbank liquidity was negative. Analysts at Cowry Asset Limited said increased participation in the CBN Standing Lending Facility window contributed to the liquidity squeeze.
Despite some marginal fluctuations, interbank rates stayed elevated, with the Overnight Policy Rate (OPR) and Overnight Rate (O/N) hovering around 32% in the absence of significant inflows. Analysts said the net credits of N505 billion from the Nigerian Treasury bills auction midweek bolstered liquidity, but overall conditions remained tight.
Later in the week, the market received inflow from FGN bond coupon payments, but liquidity stayed in deficit in spite of this. Consequently, the open repo rate declined by 12 bps week on week to 32.33%, while the O/N rate edged up by 3 bps week on week to close at 32.83%.
The banking system expanded by about 41%, closing the week with a shortfall of ₦722.58 billion and extending the system’s negative run for the third consecutive week. Banking deficit peaked at N1.588 trillion midweek, reduced to N1.22 trillion on Thursday, and closed much lower as a result of primary market repayment worth N1.6 trillion, as reported by Afrinvest Limited.
There was an inflow from FGN bond coupon payments worth NGN904.93 billion and OMO maturities totalling N10.00 billion, according to Cordros Capital Limited.
Analysts expect bond auction settlement to exert additional pressure on the banking system’s liquidity, keeping interbank rates elevated above 30% levels. #Liquidity Squeeze: Banks Borrow N8.6trn from CBN Lending Facility FG Partners WIPO to Boost SMEs’ Global Competitiveness
