Nigerian banks are grappling with steep short-term borrowing costs as liquidity constraints continue to squeeze the financial system, pushing key money market rates into double-digit territory.
Data from the interbank segment reveal sustained pressure, with borrowing rates remaining elevated due to limited funding access across the banking sector. This has forced several deposit money banks to resort to the Central Bank of Nigeria’s (CBN) Standing Lending Facility (SLF) to secure operational funds.
Despite the absence of major auctions, the financial system’s liquidity shortage deepened, exacerbated by the recent Asset Management Corporation of Nigeria (AMCON) levy and settlements for foreign exchange sales by the CBN. These outflows intensified the scramble for scarce capital at the central bank’s SLF rate.
The financial system saw some relief at the start of the week, with a decline in the liquidity deficit from ₦659.92 billion to ₦499.69 billion. This marginal improvement followed federal government bond coupon payments totalling ₦90.59 billion. However, the cash injection proved insufficient to ease the liquidity tightness, keeping overnight interbank rates anchored at 32.5%.
Nigerian Interbank Offer Rates (NIBOR) displayed a mixed pattern across different tenors. The overnight and one-month NIBOR rates edged up by 4 and 22 basis points respectively, while three-month and six-month rates dipped by 7 basis points each, according to analysts at Cowry Asset Management.
Parallel to this, money market lending rates surged, with the Open Buy Back (OBR) rate increasing by 9 basis points to settle at 32.42%, and the overnight lending rate climbing 16 basis points to 32.83%, reflecting the ongoing liquidity stress, as noted in separate financial analysts’ briefings.
Investment analysts at AIICO Capital suggested that the current 32.5% rate levels may persist until the financial system sees additional coupon inflows and statutory revenue allocations, which could ease the liquidity strain and potentially lower the rates towards the 26.5% benchmark.
