Follow Us on Google
By Chinwendu Obienyi
The Central Bank of Nigeria (CBN) has withdrawn about N596.47 billion from commercial banks’ accounts following the settlement of Federal Government of Nigeria (FGN) bond sales, Daily Sun learnt on Tuesday.
The move effectively pulled cash out of the banking system, tightening liquidity and affecting conditions in the money market.
The debits came after the Federal Government’s Bond Primary Market Auction (PMA), where banks and other investors were allotted new debt instruments and required to pay for them in cash. This led to a significant reduction in funds available for other banking operations.
Settlement of the auction resulted in a N596.47 billion outflow from the banking system, absorbing liquidity that had previously been available for interbank lending. Although the system received N537.75 billion last week from Open Market Operation (OMO) maturities, the bond-related withdrawals outweighed these inflows, leaving banks with less cash on hand.
OMO repayments normally inject liquidity back into the financial system, but in this case, they were insufficient to fully offset the cash drained by the bond settlement. The net effect was a modest tightening of money market conditions.
The overnight interbank lending rate, which reflects the cost of short-term funds between banks, rose by 8 basis points to 22.8 per cent. Banks with lower cash reserves had to borrow more from other banks to meet their obligations, while lenders with excess funds were able to charge higher rates.
Despite the tightening, the banking system remained in a net long liquidity position, with average system cash closing the week at N2.92 trillion, down from N3.28 trillion the previous week. Market watchers noted that this shows how quickly large government borrowing can reduce available cash in the financial system, even when liquidity starts at a comfortable level.
“The bond PMA absorbed a significant amount of excess cash. Although OMO maturities provided support, they were not enough to fully offset the settlement debits, so rates adjusted upward,” analysts said.
This episode highlights the close link between government borrowing and money market dynamics in Nigeria. Large bond sales often rely heavily on banks, and the settlement process, via direct debits to banks’ CBN accounts, can push short-term interest rates higher if not balanced by central bank liquidity injections or large OMO inflows.
The banking system is expected to receive N400 billion from OMO maturities, N281.53 billion from Nigerian Treasury Bill (NTB) maturities, and N216.76 billion from FGN bond coupon payments in the coming days. Analysts at Cordros Securities Ltd said these inflows should boost banks’ cash positions, ease pressure on overnight borrowing, and help interbank rates moderate.
They, however, cautioned that the trajectory of money market rates will continue to depend on the timing and size of government debt issuance, as well as the broader monetary policy stance of the CBN.
