Nigerian deposit money banks (DMBs) that could not fulfill the 65% loan-to-deposit threshold were debited N423 billion last week due to economic uncertainty. Local institutions have witnessed periodic debits on cash reserve requirements in recent years, despite a prolonged fight to maintain a sufficient liquidity position.
Regardless of local lenders’ willingness for loan creation, the apex bank retains its stance on lending to the economy’s real sector to support development. Unfortunately, the outcome has been underwhelming, with GDP growth tracking lower in 2022.
Nigerian lenders borrowed N4 trillion from the Central Bank of Nigeria’s (CBN) Standing Lending Facility (SLF) window to fill liquidity shortfalls.
According to observers, liquidity in the money market has improved. The strong financing profile has pushed short-term benchmark interest rates lower, while they remain in the double digits. Money market rates remained in the double digits in the first quarter and subsequently before a torrent of maturities flooded the system.
Analysts said on Friday that financial sector liquidity ended the week with an estimated balance of 270 billion, despite debits against banks’ cash reserve requirements. According to TrustBanc Capital Limited’s letter, a total of 422.7 billion was collected from local lenders’ CRR records in addition to retail secondary market intervention sales (SMIS) auction settlement.
As a result, interbank rates – open report and overnight lending – rose by approximately 125 basis points to close at 12.13% and 12.63%, respectively on Friday, according to data from the FMDQ Exchange platform.
Recall that system liquidity opened the week with a buoyant balance of ₦534.78 billion, it expanded to ₦756.77 billion on Thursday. The surge in the funding profile in the financial system was buoyed by inflows from RT200 worth ₦144 billion, initial cash reserve refund, and foreign currency swap maturities.
As a result, inter-bank funding rates traded at market floor levels all week, save for Friday. “In the coming week, bond auction settlement will usher in another round of thin liquidity and elevated funding rates regime”, TrustBanc Capital said.
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