Nigerian banks, grappling with liquidity challenges, secured N1.54 trillion from the Central Bank of Nigeria’s (CBN) Standing Lending Facility (SLF) to sustain operations.
The liquidity strain intensified after the settlement of an Open Market Operations (OMO) auction conducted by the CBN on Monday, which significantly drained the financial system. Analysts attributed the decline in liquidity to debits from primary market auction sales, a major driver of outflows.
The banking system’s reliance on government borrowing instruments, driven by attractive yields in the fixed-income market, has further exacerbated liquidity pressures. Transactions related to these securities have increasingly disrupted financial system balances.
By Tuesday, the financial system’s liquidity had plummeted to a deficit of N1.28 trillion, triggered by the N1.6 trillion OMO auction settlement. According to TrustBanc Financial Group, this shortfall prompted a 319% surge in SLF activity as banks sought emergency funding to meet short-term obligations.
Amid the liquidity squeeze, the system received some relief through a N101.8 billion inflow from matured OMO bills. Despite this, interbank borrowing costs soared, with the Open Buy Back (OBB) rate climbing 68 basis points to 32.07%, and the overnight rate surging 82 basis points to 32.82%.
“In the short term, we anticipate liquidity levels to remain constrained, with interbank funding rates staying elevated,” TrustBanc Financial Group stated in its market update.
The persistent liquidity challenges highlight the delicate balancing act faced by Nigerian banks as they navigate fluctuating market conditions and elevated demand for government debt instruments.
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