Nigeria’s Banking System Just Got a $3.1 Billion Liquidity Boost

Nigeria’s banking system saw funding pressure ease last week as excess liquidity rose to about $3.11 billion, pushing the overnight lending rate lower, according to analysts at Cowry Asset Limited.

System liquidity increased from about $2.40 billion the previous week, supported largely by banks’ placements at the Central Bank of Nigeria’s Standing Deposit Facility and inflows from maturing securities.

About $2.93 billion of the surplus was placed at the Standing Deposit Facility, while $1.53 billion in primary-market repayments further boosted liquidity available to financial institutions, Cowry Asset said.

The increase in liquidity helped reduce short-term funding costs, with the overnight rate falling 13 basis points to 22.13%. The funding rate remained unchanged at 22%.

The softer money-market conditions came despite continued liquidity management by the CBN through open market operations, with OMO settlements absorbing some of the excess cash from the financial system.

There was no reported activity at the Standing Lending Facility during the period, indicating that banks had little need to seek emergency short-term funding from the central bank.

Market liquidity could remain relatively strong this month, with the Financial Market Dealers Association projecting total system inflows of about $10.48 billion in September.

The projected inflows represent a 16.1% increase from about $9.03 billion recorded in August.

OMO maturities are expected to account for about 74% of projected September inflows, although the eventual liquidity position will depend heavily on how aggressively the CBN sterilises excess funds through OMO sales and other monetary operations.

The CBN stepped up liquidity absorption in August, taking about $3.15 billion out of the banking system through consecutive OMO auctions, compared with about $1.46 billion sterilised in July.

It also settled about $971 million in treasury bills on Aug. 12, adding to movements in system liquidity during the month.

Despite the sizeable liquidity withdrawals, system liquidity recovered towards the end of August following inflows from bond coupon payments and maturing securities.

The current easing in overnight funding costs follows a period of tighter conditions at the end of August.

The overnight rate rose to 23.80% on Aug. 31, a 170-basis-point increase from 22.10% at the end of July.

The Open Repo rate similarly climbed to 23.25% from 22%. Cowry Asset analysts said Nigerian Interbank Offered Rates moved higher across the curve, reflecting expectations that liquidity could tighten as the CBN continues its monetary operations.

The competing forces of large system inflows and aggressive liquidity sterilisation are therefore expected to remain key drivers of money-market pricing.

For investors in money-market funds and other short-term fixed-income instruments, movements in interbank rates could influence returns available on treasury bills, commercial paper, fixed deposits and other short-duration assets.

With substantial OMO maturities expected in September, the direction of liquidity will largely depend on whether the CBN allows the resulting cash inflows to remain within the banking system or recycles a significant portion through fresh sterilisation operations.

Stay ahead of the Stories shaping our world. Subscribe to Impact Newswire and join our 
WhatsApp Channel for updates on global tech, business, and innovation—all in one place.

Dive deeper into the future with the Cause Effect 4.0 Podcast, where we explore the ideas, trends, and technologies driving the global AI conversation.

Got a story to share? Contact Us to reach a global audience with Impact Newswire.