By Chiwendu Obienyi
Banks in Nigeria witnessed a surge in liquidity last week, with the financial system’s net cash position nearly doubling to N4.02 trillion as a cocktail of government inflows and monetary policy adjustments boosted reserves across the industry.
Data gathered from the money market showed that system liquidity, which opened the week at N2.12 trillion, was lifted by sizeable inflows from multiple sources.
These included disbursements from the Federation Account Allocation Committee (FAAC) estimated at about N1.30 trillion, maturing Open Market Operation (OMO) bills worth N254.90 billion, Nigerian Treasury Bill (NTB) maturities of N201.38 billion, and over N460 billion in primary market repayments, Daily Sun learnt.
The liquidity expansion came against the backdrop of the Central Bank of Nigeria’s (CBN) Monetary Policy Committee (MPC) meeting, where policymakers adopted a more accommodative stance in a bid to stabilise financial conditions and support credit to the real economy.
The committee had cut the Monetary Policy Rate (MPR) by 50 basis points to 27 per cent, lowered the Cash Reserve Ratio (CRR) for deposit money banks from 45 per cent, and introduced a higher 75 per cent CRR on non-Treasury Single Account (TSA) deposits.
Market dealers said the adjustments, combined with the liquidity boost from inflows, effectively eased pressure on banks’ balance sheets despite the passage of CRR debits on some institutions. “Liquidity was comfortably buoyant throughout the week. Even with the regulatory debits, inflows far outpaced outflows, allowing banks to build up significant surpluses.”, they said.
Reflecting the stronger liquidity position, short-term interest rates in the interbank market fell across board. The Nigerian Interbank Offered Rate (NIBOR) dropped significantly as cash balances swelled. The Overnight NIBOR fell by 206 basis points week-on-week to close at 24.78 per cent, while the 1-month, 3-month, and 6-month tenors declined by 158bps, 139bps, and 137bps to 25.83 per cent, 26.79 per cent, and 27.59 per cent respectively.
Benchmark funding rates also mirrored the trend. The Open Repo Rate (OPR) and Overnight (OVN) rates closed the week at 24.50 per cent and 24.88 per cent respectively, representing week-on-week declines of 200bps and 207bps.
Analysts attributed the softer rates to the sheer volume of funds available for banks to lend, which reduced competition for short-term borrowing. “The CBN’s policy easing created additional tailwinds for liquidity conditions,” analysts at a Lagos-based investment bank said in a note to clients.
“The revision of the CRR framework and injection of funds through OMO and NTB maturities provided banks with room to expand credit while keeping overnight funding costs under control.”
Looking ahead, liquidity levels are expected to remain robust as fresh inflows filter into the system.
This week, about N731.14 billion in OMO maturities and N164.29 billion in Federal Government of Nigeria (FGN) bond coupon payments are due. Unless the CBN undertakes aggressive liquidity mop-up operations, market watchers anticipate further downward pressure on overnight and short-term rates.
“Liquidity conditions are likely to stay elevated in the near term, keeping interbank rates subdued. The central bank may have to step in with more sterilisation measures if it wishes to limit excess liquidity from spilling into inflationary pressures or speculative activity in the foreign exchange market”, they said.
For now, the balance in the money market appears tilted toward easing, giving banks more breathing space after months of tight conditions. Whether the trend will hold depends largely on how the CBN manages the inflows and calibrates its policy stance in the coming weeks.
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