Follow Us on Google
By Chinwendu Obienyi
Nigeria’s banking system saw its net liquidity surplus plunge to N3.71 trillion last week from N5.98 trillion a week earlier, as lenders stepped up placements with the Central Bank of Nigeria(CBN) through the Standing Deposit Facility (SDF).
The decline in system liquidity came despite substantial Open Market Operations (OMO) repayments of N2.2 trillion, which initially supported cash balances across the financial system. However, increased SDF placements, alongside the settlement of N969 billion in Nigerian Treasury bills (NTBs), absorbed a significant portion of the surplus funds.
Specifically, NTB maturities of N706 billion provided a partial offset, but they were insufficient to prevent the overall contraction in liquidity.
Despite the decline, the banking system remained comfortably liquid, with net balances holding at approximately N3.7 trillion.
The moderation in excess cash kept short-term funding conditions relatively firm. The overnight interbank rate rose by 8 basis points week-on-week (w/w) to 20.85 per cent, while the funding rate remained unchanged at 20.40 per cent.
In the interbank market, Nigerian Interbank Offered Rates (NIBOR) moved in different directions. The overnight and one-month rates declined by 7 basis points and 5 basis points to 20.24 per cent and 20.73 per cent, respectively, while the three-month rate held steady at 21.43 per cent. The six-month rate, however, rose by 20 basis points to 21.91 per cent.
The mixed movement suggests that immediate funding pressures remained manageable, even as banks and other market participants demanded higher compensation for longer-tenor interbank exposures.
NITTY rates increased across all tenors, reinforcing signs of a repricing in treasury-backed funding costs. The one-month, three-month, six-month and 12-month rates rose by 46 basis points, 64 basis points, 19 basis points and 15 basis points to 16.51 per cent, 16.70 per cent, 17.38 per cent and 18.61 per cent, respectively.
The broad-based increase reflects prevailing liquidity conditions and market expectations around the direction of monetary policy.
Other News
Trading in the secondary Treasury bills market remained bearish, as yield increases at the longer end outweighed declines at the short and intermediate segments. Yields fell by 2 basis points and 9 basis points at the short and mid segments, respectively, but a 14-basis-point rise at the long end pushed the average market yield up by 1 basis point week-on-week to 17.89 per cent.
At the primary NTB auction, the Debt Management Office (DMO) offered N900 billion across the 91-day, 182-day and 364-day instruments. The auction attracted subscriptions of about N1.8 trillion, while total allotment reached N968 billion, exceeding the initial offer by N68 billion.
Stop rates on the 91-day and 182-day bills remained unchanged at 15.50 per cent and 15.80 per cent, respectively, while the 364-day stop rate declined by 4 basis points to 15.85 per cent.
The lower long-tenor stop rate, despite the marginal increase in secondary-market yields, points to sustained investor appetite for longer-dated government securities.
At the CBN’s OMO auction, the apex bank offered N2.0 trillion across the 147-day and 182-day maturities. Subscriptions reached N3.5 trillion, while total allotment amounted to N3.3 trillion, exceeding the announced offer by N1.3 trillion.
Stop rates cleared at 17.22 per cent for the 147-day instrument and 16.92 per cent for the 182-day instrument. The strong oversubscription and elevated allotment underscore the continued attractiveness of CBN instruments as banks seek secure, short-term outlets for surplus liquidity.
Looking ahead, money-market liquidity is expected to improve, supported by approximately N2.4 trillion in scheduled OMO maturities in this week.
According to Cowry Research, If the repayments are not substantially offset by fresh CBN sterilisation operations, the resulting liquidity injection could ease overnight funding pressures and moderate short-term money-market rates.
“However, the extent of any repricing will depend on the CBN’s subsequent liquidity-management decisions, government borrowing requirements and investor demand at forthcoming primary auctions.
The forthcoming Consumer Price Index (CPI) release will also be a key market catalyst. A further moderation in inflation could strengthen demand for fixed-income instruments and support expectations of lower yields, while an upside surprise could sustain elevated rates as investors seek to preserve purchasing power”, the firm said.
