Nigerian Banks under pressure, borrow N9.2trn from CBN to fund operations

Nigerian deposit money banks accessed more than N9 trillion to fund operations as the liquidity shortage bit last week. The financial system came under liquidity pressures in the absence of significant inflows and soaring outflows. The market had a sequence of outflows that brought the liquidity balance down, beginning with a massive open market operation (OMO bills auction) early in March and Treasury bills offers debits. As a result, money market rates have remained elevated while the banking deficit hit about N2 trillion on Friday due to the absence of significant inflows to ease the prolonged liquidity crunch.
Liquidity shortage has impacted market dynamics as cash-rich banks demand higher rates on free funds. Hence, the Nigerian interbank borrowing rate rose, albeit marginally, by 0.07 percentage points to close at 32.90%, reflecting the persistent thinning of system liquidity. At the beginning of the just-concluded week, there was a slight improvement in liquidity balance, but as the week progressed, a huge deficit in the financial system drove interbank rates higher. According to information on FMDQ platform, the open repo rate peaked at 32.50% midweek before settling at 32.40%, while the overnight lending rate climbed steadily, closing at 32.90%.
Throughout last week, inflows into the money market were minimal compared to funding requirements. The market saw FGN coupon inflows of N254.8 billion, of which the Nigerian Treasury bills auction settlement drained. On Friday, the deficit in the banking system expanded by 7%, closing with a negative balance of N1.96 trillion, TrustBanc Financial Group said in its investors note. The investment firm said at the start of the week, the system recorded a lower deficit of N700.29 billion, supported by an inflow of N255.74 billion from CBN remittances.
However, liquidity conditions deteriorated as banks faced funding shortages due to the combined impact of FX sales settlements and NTB auction settlements of N503.92 billion. To meet short-term liquidity needs, Deposit Money Banks (DMBs) accessed N9.15 trillion through the CBN’s Standing Lending Facility (SLF) window, TrustBanc Financial Group Limited revealed. Consequently, the average system liquidity worsened to settle at a net short position of about N2 trillion ahead of inflows from the Federal Account Allocation Committee in the new week. Analysts expect rates to tighten on the expectation that inflows from FGN bond PMA debits totaling N300 billion will outweigh inflows from FGN bond coupon disbursements of N202 billion.