Excess liquidity in banking system expands to N3.8trn

The money market remains solid in terms of liquidity, which kept the short-term interest rate benchmark movement in check. Banks’ placements increased, while there was moderation on financial institutions borrowing from the Central Bank (CBN) standing lending facility. The market liquidity expanded after huge inflows from the federation allocation committee disbursed N1.5 trillion, which was greeted with moderate CBN action. The absence of funding pressures left open repo and overnight lending at floor rates. Market analysts noted that the interbank rates diverged in response to liquidity condition.  According to investment firms, the financial system liquidity opened the day with a surplus balance of ₦3.8 trillion, representing an increase of ₦659.0 billion from the previous position.
Banks’ placements advanced as additional inflows boosted system liquidity, which closed at N3.777 trillion from N3.119 trillion.
Investment firm AIICO Capital Limited reported that the improvement was primarily driven by a ₦261.4 billion bonds coupon inflow and an increase in the CBN’s Standing Deposit Facility (SDF) window to ₦2.9 trillion. Despite the improvement, average funding costs rose by 2 bps, as the Open Repo Rate (OPR) held steady at 24.50%, while the Overnight (O/N) rate spiked by 3 bps to close at 24.86%. Broadstreet analysts anticipate funding cost to remain at similar level, barring any funding activity
System liquidity remained robust throughout last week, opening at N956.71 billion and closing significantly higher at N3.12 trillion, MarketForces Africa reported. This was largely driven by N1.5 trillion FAAC allocation disbursements, which offset the liquidity mop-up impact of the OMO and NTB auctions. The Treasury Bills secondary market witnessed yields decline across all tenors on Monday, with 1-month, 3-month, 6-month, and 12-month rates declining by 13 bps, 12 bps, 18 bps, and 16 bps, respectively. However, the average Nigerian Treasury Bills yield dropped 2 bps to 17.41%, indicating positive and strong investor sentiment in the secondary market.