Cash in banking system grew to N4.78trn in February –Report

By Chinwendu Obienyi

Nigeria’s banking system experienced a significant liquidity boost in February, as N4.78 trillion flowed into the market from maturing government securities and federal allocations, the latest monthly market report by Cowry Research revealed on Monday.

The surge created favourable conditions for short-term borrowing and eased funding pressures across the financial sector.

According to the report, the inflows comprised N1.43 trillion from Treasury bill maturities, N1.65 trillion from Open Market Operation (OMO) maturities, and N1.7 trillion in Federal Accounts Allocation Committee (FAAC) disbursements.

These combined inflows left banks flush with cash, enabling them to meet funding needs comfortably and reducing the demand for interbank borrowing.

The impact was immediately visible in the interbank market. The overnight Nigerian Interbank Offered Rate (NIBOR), a benchmark rate for short-term borrowing between banks, fell sharply by 865 basis points month-on-month to 22.00 per cent. Other key tenors also eased, with the 1-month, 3-month, and 6-month rates declining by 768 basis points (bps), 655bps, and 666bps to 22.91%, 23.64 per cent, and 24.34 per cent respectively.

Explaining that this broad-based moderation reflected a liquidity-driven relief across the banking system, the report revealed that market participants have shown continued interest in treasury instruments despite lower interbank rates.

“High demand for Treasury bills and bonds indicates investors are seeking better yields, even as banks find it easier to access funds. While interbank rates have moderated, investors remain focused on longer-term government securities that offer attractive returns in a low-risk environment”, the report said.

The CBN’s monetary operations, including the maturity of OMOs and T-bills, have been instrumental in maintaining this liquidity. By allowing previously issued instruments to mature, the apex bank has injected substantial cash back into the financial system. Combined with regular FAAC disbursements, the result is a robust cash position in commercial banks, enabling smoother lending operations and improving overall market confidence.

Experts say the liquidity surge could have wider implications for the economy. Lower interbank rates reduce the cost of short-term funding for banks, which can, in turn, ease lending conditions for businesses and consumers. “The February liquidity injection is a welcome development. It provides banks with flexibility and could support credit growth if banks translate the improved cash positions into more lending”, they said.