The Nigerian financial system witnessed a notable surge in money market interest rates last week, as commercial banks faced intense competition for scarce liquidity amid foreign exchange interventions and statutory payments. A combination of factors, including the settlement of the Asset Management Corporation of Nigeria (AMCON) levy and central bank forex obligations, contributed to a deepening funding gap across the market.
With no inflows from Open Market Operations (OMO) or Treasury bill maturities, liquidity in the system dried up, pushing short-term interest rates as high as 32%. The growing strain prompted a spike in interbank borrowing activities, with deposit money banks (DMBs) seeking funds to meet operational demands amid tightening liquidity.
Recent financial data shows the system’s deficit ballooned to ₦659.92 billion by the end of the trading week. According to analysts, the drawdown was exacerbated by the dual settlement obligations placed on DMBs by both the AMCON and Central Bank of Nigeria (CBN). The resulting liquidity withdrawal amounted to ₦442.88 billion, shifting the financial system’s position from a debit of ₦281.86 billion to a staggering ₦724.74 billion. This, despite a modest ₦65.36 billion injection from a Federal Government bond coupon payment.
Analysts at Cowry Asset Management noted that the mounting liquidity stress prompted a bidding war among financial institutions, particularly in the short-term and overnight markets, where demand outpaced supply.
In spite of the tightening, the Overnight Nigerian Interbank Offered Rate (NIBOR) edged down by 4 basis points, closing the week at 32.71% compared to 32.75% the week before. This marginal decline suggests some stability in very short-term borrowing conditions, likely due to temporary overnight adjustments.
However, pressure remained on medium-term lending rates. The 1-month, 3-month, and 6-month NIBOR rates saw upticks to 27.86% (+22 bps), 28.14% (+10 bps), and 28.66% (+13 bps), respectively, underlining the persistent stress in securing term funding.
Meanwhile, benchmark interbank lending rates—specifically the Open Buy Back (OBB) and Overnight (O/N) rates—continued their upward trajectory. The OBB rate climbed to 32.33% from 31.50%, while the O/N rate closed at 32.67%, up from the previous 32.17%. These metrics point to a sustained increase in overnight borrowing costs, reflecting tighter cash availability across the board.
Market participants are looking ahead with cautious optimism, as a scheduled ₦326.88 billion in Treasury bill maturities is expected to re-inject much-needed liquidity into the system. This inflow could ease short-term funding constraints, potentially alleviating pressure on interbank borrowing rates and providing temporary relief to the banking sector.
