Nigeria: Interbank Rates Decline as FAAC Credit Boosts Banking System Liquidity

Interbank rates have dropped as liquidity pressures in the money market eased, driven by inflows from the Federal Accounts Allocation Committee (FAAC). Despite this improvement, analysts anticipate tighter liquidity following the N530 billion Treasury bills auction scheduled for Wednesday.

Market data indicates that the short-term interest rate benchmark fell to the 30% range, although liquidity levels remained constrained. Banks continued to rely on the Central Bank of Nigeria’s (CBN) Standing Lending Facility (SLF) to meet daily funding needs in the absence of significant inflows.

As rising funding requirements pressurize their daily liquidity positions, financial analysts expect local lenders to maintain their borrowing trend from the SLF this week.

On Wednesday, interbank liquidity opened in negative territory but saw significant improvement later in the day due to FAAC payments and bond coupon inflows. In a note to investors, AIICO Capital Limited confirmed that liquidity conditions improved as the day progressed, leading to a decline in interbank rates.

Specifically, the overnight policy rate (OPR) dropped by 0.96% to 29.58%, while the overnight lending rate (O/N) decreased by 0.44%, settling at 30.56%.

However, TrustBanc Financial Group Limited reported that banking system liquidity fell sharply, declining by 143% to open the day with a deficit of ₦93.55 billion, even after receiving ₦75.39 billion in bond coupon repayments.

The tight liquidity trend in the money market persisted throughout last week, with financial system liquidity closing at a negative ₦397.79 billion on Friday. Call, overnight, and repo rates ranged between 7.70% and 32.75%, reflecting continued pressure on the money market.

TrustBanc Financial Group Limited noted, “Given the current liquidity balance, we expect interbank rates to remain at similar levels in the near term.”

This development highlights the interplay between FAAC inflows and persistent liquidity constraints, which continue to shape interbank rates in the short term.