Banks deposit N7.9trn with CBN as demand for loans weakens

The Central Bank of Nigeria (CBN) absorbed a substantial volume of excess liquidity from the banking system during the week, with balances at its Standing Deposit Facility (SDF) reaching N7.9trn, data at the weekend revealed. According to data obtained from the apex bank, system liquidity strengthened during the week, with the net liquidity surplus rising to N6.94 trillion from N6.28 trillion in the previous week, after peaking at N8.4 trillion midweek. The improvement was supported by approximately N2.1trn in maturing Open Market Operations (OMO) bills, N392.8bn in Treasury bills maturities and N330bn in primary market repayments. This elevated placements reflect banks’ preference for depositing surplus funds with the apex bank amid limited immediate funding requirements, despite the considerable liquidity available across the financial system. These inflows provided additional funds to the banking system, contributing to the accumulation of excess cash and reinforcing banks’ reliance on the CBN’s deposit facility. The elevated SDF balances suggest that banks had limited incentives to deploy their surplus funds into the interbank market, particularly as immediate funding obligations remained subdued. Consequently, a significant portion of the available liquidity was channelled towards the CBN rather than being actively traded among financial institutions. This trend highlights the importance of the apex bank’s liquidity-management framework in influencing the distribution of funds within the banking system. Despite the substantial liquidity surplus, short-term funding conditions remained broadly stable. The overnight rate declined marginally by two basis points to 20.36 per cent from 20.38 per cent in the previous week, while the funding rate remained unchanged at 20.00 per cent. The relatively limited movement in these rates indicates that the liquidity overhang did not translate into significant easing in short-term funding costs during the review period. Meanwhile, rates in the Nigerian Interbank Offered Rate (NIBOR) market increased across all reported tenors, pointing to continued caution regarding future funding conditions. The overnight NIBOR rose by approximately four basis points to 20.29 per cent, while the one-month, three-month and six-month rates advanced by 45 basis points, 77 basis points and 126 basis points to 20.73 per cent, 21.09 per cent and 21.54 per cent, respectively. The divergence between stable overnight funding costs and rising term rates suggests that market participants continued to price in uncertainty surrounding future liquidity conditions and monetary policy operations. The CBN also sustained its liquidity-management efforts through its OMO auction, offering N2trn across the 138-day and 180-day maturities. Total subscriptions reached N2.7 trillion, while allotments amounted to N2.6 trillion, demonstrating strong investor demand for short-term, high-yielding instruments and the apex bank’s willingness to absorb excess funds. The stop rates settled at 17.63 per cent for the 138-day instrument and 17.14 per cent for the 180-day bill. Commenting on the outlook, Cowry Research, said liquidity conditions are expected to remain influenced by the interaction between maturity-related inflows and the CBN’s sterilisation activities this week. “Approximately N2.13 trillion in expected OMO maturities and N130.72 billion in Treasury bills maturities could provide additional liquidity to the banking system. However, the anticipated N800 billion Treasury bills auction may partially offset these inflows, depending on subscription levels and the Debt Management Office (DMO)’s2 allotment decisions. Overall, the elevated SDF balances underscore the persistence of excess liquidity within the banking system and banks’ continued preference for holding surplus cash with the CBN. The direction of short-term rates in the coming week will depend largely on the pace of liquidity injections, the scale of further monetary operations and the extent to which banks deploy their excess funds into alternative investment opportunities”, the research and investment firm said. Tags:

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