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Amid a significant liquidity deficit in the Nigerian banking system, banks turned to the Central Bank of Nigeria (CBN) for support, borrowing approximately N4 trillion through its Standing Lending Facility (SLF). The money market faced considerable pressure, with liquidity deficits reaching N398 billion, driven by substantial outflows that outpaced the inflows recorded during the week.
The liquidity crunch stemmed from large outflows related to cash reserve maintenance debits imposed by the CBN and FX settlements from US dollar sales to banks. According to a report by TrustBanc Financial Group Limited, the week ended with the banking system posting a deficit balance of N397.79 billion, a sharp decline from the previous week’s surplus of N346.96 billion.
Liquidity Strain Despite Inflows
Despite inflows from Open Market Operations (OMO) maturities and Remita payments, the system’s liquidity remained under strain as outflows dominated. AIICO Capital Limited noted that net cash reserve debits on banks exacerbated the liquidity squeeze, compounded by FX settlement outflows and swap rollovers.
While OMO maturities injected N252.50 billion into the system, these inflows were insufficient to offset the outflows, forcing banks to rely heavily on the SLF window. Analysts reported total borrowings from the facility at N3.99 trillion during the week.
Spike in Money Market Rates
The liquidity shortage drove interbank funding rates higher, with rates climbing from 28% in the previous week to around 32%. Cordros Capital Limited observed that the overnight rate surged by 489 basis points (bps) week-on-week to 32.8%, while the open repo rate (OPR) increased by 504 bps to 32.33%.
The sharp rise in rates was attributed to cash reserve requirement (CRR) debits, which overshadowed the impact of OMO maturities and FGN bond coupon payments worth N410.70 million. Analysts anticipate inflows from upcoming FGN bond coupon payments of N162.42 billion to provide some relief to the banking system in the following week.
Market Outlook
Despite tight conditions, the money market is expected to stabilize slightly as these anticipated inflows ease liquidity pressures. However, analysts caution that the situation will remain dependent on the balance of inflows and outflows, particularly concerning FX settlements and CBN interventions.
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