Nigerian Banks Borrow N9 Trillion from CBN as Liquidity Scarcity Hits

• To finance their operations, Nigerian Deposit Money banks got access to over N9 trillion from the CBN
• The financial sector had liquidity restrictions as a result of high outflows and low inflows in the system
• The liquidity balance decreased as a result of many market withdrawals in early March, and Treasury bill offer debits

Legit.ng journalist Zainab Iwayemi has 5 years of experience covering the Economy, Technology, and Capital Market.

Following last week's liquidity scarcity, Nigerian Deposit Money banks were able to access almost N9 trillion to fund their operations. The lack of large inflows and high outflows caused liquidity constraints in the financial sector.

The Nation reported that a series of market outflows, starting with a large open market operation (OMO bills auction) in early March and Treasury bills offer debits, caused the liquidity balance to decline.

Due to the lack of large inflows to alleviate the ongoing liquidity crunch, money market rates have remained high, and the banking deficit reached approximately N2 trillion on Friday. The lack of liquidity has affected market dynamics, as cash-rich banks demand higher rates on free funds.

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As a result, the Nigerian interbank borrowing rate increased, albeit slightly, by 0.07 percentage points to close at 32.90%, reflecting the ongoing thinning of system liquidity.

The liquidity balance showed a minor improvement at the start of the just-ended week, but as the week went on, a significant financial sector deficit caused interbank rates to rise.

The overnight lending rate increased progressively, closing at 32.90%, while the open repo rate peaked at 32.50% midweek and then settled at 32.40%, according to data on the FMDQ website.

Money market inflows during the past week were negligible in comparison to funding needs. The Nigerian Treasury bills auction settlement depleted the N254.8 billion in FGN coupon inflows that were received by the market.

In its investors' statement, TrustBanc Financial Group stated that the banking system's deficit had grown by 7% on Friday, ending the day with a negative balance of N1.96 trillion. According to the investment firm, an influx of N255.74 billion via CBN remittances helped the system report a smaller deficit of N700.29 billion at the beginning of the week.

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However, banks experienced financing constraints as a result of the combined impact of N503.92 billion in NTB auction settlements and FX sales settlements, which worsened liquidity conditions.

According to TrustBanc Financial Group Limited, Deposit Money Banks (DMBs) used the CBN's Standing Lending Facility (SLF) window to get N9.15 trillion in order to cover its short-term liquidity needs.

As a result, ahead of the Federal Account Allocation Committee's inflows the following week, the average system liquidity deteriorated and settled at a net short position of almost N2 trillion.

Rates are expected to tighten as analysts anticipate that the N300 billion in inflows from FGN bond PMA debits would exceed the N202 billion inflows from FGN bond coupon distributions.

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Legit.ng reported that the Central Bank of Nigeria disclosed that consumer credit in Nigeria dropped to N3.5 trillion in October 2024.

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This represented a 17.6% or N750 billion month-on-month (MoM) decline compared to the N4.25 trillion reported in September 2024.

The apex bank stated this in its just-released monthly report for October 2024, Vanguard reports.

Source: Legit.ng