By Eshioromeh Sebastian, Abuja
Nigerian commercial banks borrowed over N9 trillion from the Central Bank of Nigeria (CBN) last week to sustain operations amid worsening liquidity constraints. The financial system faced intense pressure due to minimal inflows and surging outflows, exacerbating the cash shortage.
Market liquidity took a hit following a series of outflows, including a major Open Market Operation (OMO) auction in early March and Treasury bill debits, pushing the banking sector’s deficit to nearly N2 trillion by Friday. With no substantial inflows to ease the crunch, money market rates remained high.
The liquidity squeeze has reshaped market dynamics, with cash-rich banks demanding higher interest rates on available funds. Consequently, the interbank borrowing rate inched up by 0.07 percentage points to 32.90%, underscoring the persistent liquidity strain.
Data from the FMDQ platform showed that the open repo rate peaked at 32.50% midweek before settling at 32.40%, while the overnight lending rate climbed steadily to 32.90%.
Last week, inflows into the money market were insufficient to meet funding demands. While N254.8 billion entered the system from FGN coupon payments, this was offset by Treasury bill auction settlements. By Friday, the banking system’s deficit had widened by 7%, reaching N1.96 trillion, according to TrustBanc Financial Group.
The week began with a N700.29 billion deficit, slightly cushioned by a N255.74 billion CBN remittance. However, liquidity conditions worsened as banks grappled with funding gaps caused by foreign exchange (FX) settlements and NTB auction debits of N503.92 billion.
To bridge the shortfall, Deposit Money Banks (DMBs) tapped N9.15 trillion from the CBN’s Standing Lending Facility (SLF). As a result, the average system liquidity position deepened to a N2 trillion deficit, with analysts anticipating further tightening.
Market watchers predict that upcoming inflows from Federal Account Allocation Committee (FAAC) disbursements may provide relief. However, with N300 billion in FGN bond debits expected to outweigh N202 billion in coupon payments, interest rates could remain elevated in the near term.
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