Nigeria: Banks Turn to CBN for Funds Amidst Liquidity Crunch

With interbank borrowing rates on the rise due to escalating liquidity pressure within the financial system, the situation is expected to exacerbate further this week as the market faces debits from Treasury bills auction sales scheduled today. Earlier in the week, the central bank conducted an auction for Nigerian Treasury bills.

Investors showed robust interest, committing over N1.54 trillion for an offer valued at N303 billion.

Despite the heightened demand, the central bank adjusted rates on the treasury bills upwards. In the money market, short-term benchmark rates have started climbing due to the absence of inflows within the system.

Local deposit money banks grappling with liquidity needs have embarked on renewed visits to the CBN’s standing lending facility to bolster their daily positions. Financial institutions that are flush with cash, particularly those classified under the tier-1 category, have initiated requests for elevated rates on available funds.

According to data sourced from FMDQ, the open repo rate (OPR) and the overnight lending rate (OVN) have both seen an increase, settling at 24.50% and 25.40%, respectively.

Meanwhile, participants in the fixed income securities arena experienced limited activity in the Treasury bills secondary market, leading to an unvaried average yield at 8.3%. Elsewhere, the average yield in the OMO segment retained its position at 11.2%.

In the bond market, a selling rally exerted upward pressure, resulting in a 2 basis point climb in the average yield, settling at 14.1%. Analysts have noted that across the benchmark curve, the average yield edged higher in the mid (+10bps) segment as investors divested from the APR-2029 (+29bps) bond.

However, the average yield remained unchanged at the short and long ends of the curve.

The tight liquidity environment translated into upward movements across all maturities of the Nigeria Inter-Bank Offered Rate (NIBOR), as observed by Cowry Asset Management. Significantly, the three-month NIBOR rate witnessed an 88 basis point ascent, reaching 14.43%.