Nigeria’s banking sector recorded a sharp rise in system liquidity last week following a wave of inflows from matured investment instruments and the absence of liquidity-sterilizing measures by monetary authorities.
Fresh funds entered the financial system primarily from expired Open Market Operation (OMO) instruments and primary market settlements, significantly strengthening aggregate liquidity conditions across Deposit Money Banks (DMBs).
Market data showed that system liquidity expanded substantially to ₦4.32 trillion, up from ₦2.62 trillion in the preceding week, according to a report by AIICO Capital Limited. The increase was largely attributed to approximately ₦993 billion in OMO maturities, alongside inflows from primary market repayments and heightened activity at the Central Bank of Nigeria’s (CBN) Standing Deposit Facility (SDF).
Banks Channel Funds into CBN Facilities
With limited appetite for credit extension to the real economy, commercial lenders redirected surplus funds toward short-term money market instruments offering attractive real returns. Rather than expanding loan books, banks increased placements at the CBN’s SDF window, signalling a preference for low-risk, high-yield liquidity management strategies.
At the same time, borrowing at the Standard Lending Facility (SLF) remained modest, even as institutions maintained elevated participation in central bank funding channels.
Analysts observed that despite the strong liquidity position, monetary authorities refrained from sterilizing excess cash through aggressive Open Market Operations. This policy pause contributed to continued liquidity accumulation within the financial system.
Money Market Rates Show Mixed Movement
Short-term benchmark interest rates reflected the expanded liquidity environment but moved divergently.
The overnight lending rate declined marginally by three basis points to 22.78 percent, while the repo rate remained unchanged at 22.50 percent, indicating balanced funding dynamics despite surplus conditions.
In the interbank market, the Overnight Nigerian Interbank Offered Rate (NIBOR) eased by two basis points to 22.82 percent, supported by improved liquidity and relative stability in the naira, according to Cowry Asset Limited.
Market participants reported ₦154.23 billion in primary market repayment inflows, which helped moderate volatility in money market rates during the week.
Liquidity remained firmly positive throughout the period, expanding steadily and closing at a stronger level than at the week’s opening. Analysts described funding conditions as mixed but broadly stable.
Outlook: Further Inflows Expected
Looking ahead, system liquidity is projected to remain robust in the coming week. Market estimates indicate expected inflows of approximately ₦765.89 billion from maturing Treasury bills and ₦319.54 billion in additional OMO repayments.
Despite these inflows, analysts anticipate that the Central Bank of Nigeria will resume liquidity sterilization through new OMO issuances to prevent excessive downward pressure on interbank rates.
Interbank funding rates are expected to remain range-bound between 22.5 percent and 22.80 percent in the near term, reflecting cautious liquidity management and steady policy signals from the apex bank.
