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By Chinwendu Obienyi
Nigeria’s banking system sank deeper into liquidity deficit territory last week after the Central Bank of Nigeria (CBN) withdrew an estimated N3.7 trillion through aggressive sales of treasury and open market operation (OMO) bills, intensifying funding pressures across money markets.
This came after the apex bank reportedly sold N1.1 trillion in Nigerian Treasury Bills (NTBs) and an additional N2.6 trillion in OMO bills, debiting commercial banks and more than offsetting cash inflows from maturing securities.
The move came despite a N2.2 trillion repayment from the primary market, which would normally have boosted system liquidity.
Instead, the banking system’s cash position deteriorated further, with the liquidity shortfall widening to N2.5 trillion, from N1.8 trillion recorded the previous Friday, according to data gathered by Daily Sun.
“The repayment inflows were quickly absorbed. Once banks subscribed to the NT-bills and OMO bills, the funds were immediately debited, leaving the system more strained than before”, they said.
OMO bills, debt instruments primarily accessible to banks and foreign investors,q remain one of the CBN’s most effective liquidity-management tools. By offering attractive yields, the central bank encourages financial institutions to channel excess funds back to its balance sheet, reducing cash available for lending, trading and foreign-exchange demand.
The liquidity squeeze was compounded by heavy placements at the Standing Deposit Facility (SDF), where banks deposited N10.1 trillion last week. With SDF rates remaining competitive relative to market yields, banks opted to park surplus cash with the central bank rather than deploy funds in the interbank or secondary debt markets.
As a result, liquidity conditions tightened even as headline inflows rose.
Interbank funding rates reflected the strain. The open-buy-back rate closed unchanged at 22.5 per cent, while the overnight lending rate edged higher by 10 basis points (bps) to 22.8 per cent, remaining near the upper end of the policy corridor.
In the Treasury-bill primary auction, the CBN offered N1.2 trillion across 91-day, 182-day and 364-day tenors, but sold only N1.1 trillion, maintaining a cautious issuance stance.
Demand was overwhelmingly concentrated at the long end of the curve, with investors bidding heavily for the one-year paper amid expectations that yields may peak later in the year.
Stop rates were mixed, with yields on short-dated bills rising slightly while the 364-day paper cleared lower, highlighting investor preference for locking in longer-term returns.
Secondary-market trading mirrored the liquidity stress. Average Treasury-bill yields rose by 15 basis points during the week, driven largely by selloffs at the short end of the curve as investors demanded higher compensation for funding risk. Long-dated bills, however, benefited from post-auction demand, which helped cap yield increases.
Analysts say the persistence of large-scale liquidity withdrawals suggests the central bank is unlikely to relax its stance in the near term.
Afrinvest Research’s weekly emailed note, said, “Overall, investors appear to be locking into long-term papers at attractive yields, while tactical caution dominates at the front of the curve.
This week we expect inflows from monthly FAAC inflow and FGN coupon payment of N63.1 billion. Nevertheless, we anticipate current dynamics to persist with mild bearish outcome in the secondary market”.
